Oil prices traded near flat Thursday after weekly U.S. inventory data showed surprise drops in crude-oil supplies and production.
Prices have dropped sharply in July as persistently high U.S. production, coupled with record output from other major suppliers like Saudi Arabia, met worries about slowing demand exacerbated by this month's massive selloff in Chinese equities.
Light, sweet crude for September delivery recently traded flat at $48.79 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 0.6%, to $53.70 a barrel on ICE Futures Europe.
On Wednesday, the U.S. Energy Information Administration reported that U.S. crude inventories fell by 4.2 million barrels last week, defying analysts' expectations of no change.
U.S. oil production also fell, by 145,000 barrels a day to 9.4 million barrels a day, the largest one-week decline since October 2013.
"This was the most pronounced drop in production in recent years," said analysts at Commerzbank, apart from brief weather-related production outages. "Because the decline in production was not attributable to such special factors, it could prove sustainable."
The number of oil drilling rigs in the U.S.--a rough proxy for activity in the industry--has dropped about 60% since October, but production has kept relatively stable so far.
The EIA's weekly production figures are based on a forecasting model, not reported output. Energy-focused investment bank Tudor Pickering Holt & Co. told clients in a note Thursday that the most recent weekly number is "too large to be believed," but "the direction of the production estimates is more important than the magnitude and suggests production has started to decline."
The EIA's monthly production data, which are considered more reliable, have only been released through April, though the agency said earlier in July that it expected production to start declining in May. The monthly figure for May will be released Friday.
Many investors remain cautious that oil prices can recover.
"Global oil production continues to surprise, with little sign of decline," said Robert Haworth, investment strategist at U.S. Bank Wealth Management, which has $127 billion under management. According to Mr. Haworth, softer economic data out of Europe and China may indicate weak demand growth in the next couple of months.
"Prices are likely to remain weak until global production slows or demand accelerates," he said.
Gasoline futures recently rose 1.1% to $1.8417 a gallon. Diesel futures rose 0.6% to $1.6076 a gallon.