U.S. and global oil benchmarks shook off an early decline and wavered between gains and losses on Wednesday, as weekly government data contained both bullish and bearish surprises.
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The U.S. Energy Department said its estimate of domestic crude production ticked below 9 million barrels a day last week for the first time since September 2014, giving oil bulls a long-awaited milestone of proof that the oversupply, and resulting glut that have plagued the market for two years, is finally beginning to abate.
"Production broke through the psychological 9 million barrel per day threshold," said Stephen Schork, president of research consultancy The Schork Group.
The department also reported a large drawdown in inventories at the key U.S. delivery hub in Cushing, Okla. Though the reduction was likely related to problems with the Keystone import pipeline from Canada last week, the data was a bullish signal to investors looking for more evidence of falling supplies.
But the department also said imports of foreign oil rose last week, that refinery demand slowed and that overall stored U.S. inventories rose much more than expected.
U.S. and global oil benchmarks, which had been trading lower before the data release, wavered on the news. The U.S. oil benchmark was up 0.3% at $42.30 a barrel on the New York Mercantile Exchange, while the global Brent contract was up 0.3% at $44.83 a barrel on the ICE Futures Europe exchange.
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Both markets hit 2016 highs Tuesday after a Russian news agency reported Saudi Arabia had agreed to a production freeze. But Russia's energy minister declined to comment on the report, and Saudi Arabia's oil minister made public comments dismissive of the notion.
Meanwhile, a closely watched monthly report from the Organization of the Petroleum Exporting Countries said its output rose 15,000 barrels a day to 32.25 million barrels a day in March, led by surging production from Iran. Still, the cartel said global production overall seemed to be falling faster than expected in response to the price collapse of the past two years, with big declines coming in China, the U.S. and Europe.
Russia, Saudi Arabia and other major producers are scheduled to meet Sunday in Doha, Qatar, to weigh an agreement freezing their production at January or February levels. Analysts have been skeptical that an agreement can be reached, or that such a deal would do anything substantive to begin reducing a global oil oversupply estimated to be growing at a rate of 1 million to 2 million barrels a day.
Iran has said it won't participate in an agreement until it restores output to levels achieved before international sanctions were imposed on the country, and Iraq and Russia have said they set new production records in March.
"We view a positive outcome from the Doha meeting as unlikely," Australian investment bank Macquarie Group Ltd. said in a research note. "We do not believe that anyone is going to cut production to get back into compliance with January levels."
The coming Doha meeting is dominating market sentiment and will continue to do so for the rest of the week, according to Morgan Stanley. But if a deal is agreed, any upside would likely be limited to current price levels, the bank said in a research note.
"The bear case is that the deal falls apart (low odds in our view), but we would still expect positive spin and a commitment to continue talks."
In refined product markets, gasoline futures were down 0.4% at $1.5277 a gallon, while diesel futures were up 0.6% at $1.2829 a gallon.
Benoit Faucon, Kevin Baxter and Jenny W. Hsu contributed to this article.
By Christian Berthelsen