Oil prices rose on Thursday, but swelling crude stockpiles in the United States limited the rebound from a one-week low after the International Energy Agency said oil markets had been tightening even before cuts agreed by OPEC and other producers took effect.
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The IEA said that while it was "far too soon" to gauge OPEC members' compliance with promised cuts, commercial oil inventories in the developed world fell for a fourth consecutive month in November, with another decline projected for December.
Benchmark Brent crude was up 38 cents, or 0.7 percent, at $54.30 a barrel by 11:44 a.m. EST (1644 GMT) after closing down 2.8 percent in the previous session. U.S. crude rose 36 cents, or 0.7 percent, to $51.44 a barrel, having dropped to a one-week low on Wednesday of $50.91.
Prices tumbled to session lows after weekly inventory data from the U.S. Energy Information Administration (EIA) showed U.S. crude inventories rose unexpectedly last week as refineries sharply cut production.
The data also showed much larger-than-expected increases in stocks of gasoline and a surprise drop distillates inventories. Stockpiles of gasoline in the U.S. East Coast swelled to the highest weekly levels on record for this time of year, when refiners typically begin storing barrels ahead of summer driving season.
"At the end of the day, the focus is on the bigger picture and the bigger picture still looks positive which is why we are still up," said Scott Shelton, energy specialist at ICAP in Durham, North Carolina.
"The bigger picture includes the OPEC/non-OPEC supply cuts and the IEA report, which was pretty supportive."
Oil prices have gyrated this year, as hopes for output cuts by the Organization of the Petroleum Exporting Countries and other producers have alternated with fears of a sharp rebound in U.S. shale production.
The head of the IEA, Fatih Birol, said in Davos, Switzerland, that he expected U.S. shale oil output to rebound by as much as 500,000 barrels per day over the course of 2017, which would be a new record.
OPEC, which is cutting oil output alongside independent producer Russia, wants a lasting partnership with Moscow, Saudi Energy Minister Khalid al Falih told Reuters. He said the deal need not be extended for a full year if the market rebalances.
The IEA sharply raised its 2016 demand growth estimate, and said the data indicated that rising demand was slowly tightening global oil markets.
Still, analysts said OPEC and other producers must cut output as promised, as a resilient U.S. shale industry could add barrels to the market.
"Discipline and strict adherence to the new quotas will be needed probably throughout 2017 and beyond to see the long-awaited and sustainable rebalancing finally arrive," PVM Oil Associates analyst Tamas Varga said.
(By Devika Krishna Kumar; Additional reporting by Scott DiSavino in New York, Libby George and Christopher Johnson in London, Naveen Thukral in Singapore; Editing by Marguerita Choy and Mark Potter)