Oil prices up as strong demand offsets rising inventory

Oil prices rose on Wednesday after U.S. government data indicated bullish demand for gasoline and distillates, which overshadowed a surprise build in U.S. crude inventories and U.S. crude oil production hitting 11 million bpd for the first time.

Brent crude futures rose 58 cents to $72.74 a barrel, by 12:38 p.m. EDT (1638 GMT). The contract hit a session low of $71.19 a barrel, its lowest since April 17.

U.S. West Texas Intermediate (WTI) crude futures rose 19 cents to $68.27 a barrel.

U.S. crude stocks surprised the market and rose by 5.8 million barrels last week as oil production hit 11 million barrels a day for the first time ever, the Energy Information Administration said on Wednesday.

Crude futures extended losses immediately following the data release, before edging higher as the market weighed some of the more supportive points in the report, such as a larger-than-expected draw in gasoline stocks.

Gasoline inventories fell by 3.2 million barrels, while distillate stockpiles, which include diesel and heating oil, fell by 371,000 barrels, the EIA data showed.

“Even though the overall crude number was bearish, the gasoline numbers and distillate numbers were pretty bullish,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “We’re back to worrying about a tight market.”

Oil markets have fallen over the last week as Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries and Russia increased production and as some supply disruptions eased.

“The correction in the oil price represents something of a convergence between fundamentals and physical realities,” said David Reid, lead crude market analyst at consultancy JBC Energy.