Oil prices pulled back Wednesday even as weekly data from the U.S. Energy Department showed a surprise decrease in crude-oil stockpiles.
The U.S. Energy Information Administration said crude-oil inventories declined by 754,000 barrels in the latest week. Analysts surveyed by The Wall Street Journal expected an increase of 3.7 million barrels and the American Petroleum Institute, an industry group, had reported a 2.4 million-barrel rise in crude supplies.
The report is a widely watched measure of supply and demand, and a drawdown on stocks would signal higher demand or lower supplies than expected. Analysts and a broker pointed to a 1.1-million-barrel drop in imports for the week that likely caused the decline in supply.
"We just don't need crude oil imports to run the country," said Carl Larry, director of oil and gas at Frost & Sullivan, a consulting firm in Houston.
Prices spiked after the data but didn't hold gains, likely because of a larger oversupply around the world and still-growing stockpiles of motor fuels and other oil products in the U.S., analysts said.
Light, sweet crude for March delivery settled down 49 cents, or 1.8%, at $27.45 a barrel on the New York Mercantile Exchange. It rose as high as $29.22 a barrel immediately after the report.
Brent, the global benchmark, recently traded up 76 cents, or 2.5%, to $31.08 a barrel on ICE Futures Europe. It reached as high as $31.90 immediately after the report.
Despite the drawdown on crude, total oil stockpiles did still grow last week, according to the EIA, because of increases to both gasoline and diesel storage levels. They both grew by 1.3 million barrels, compared with expectations of a 900,000-barrel decline for distillates and just a 1 million-barrel increase for gasoline.
That likely played a major role in halting the sharp rally, said Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates. Oil prices spiked around $1 and fell all the way back within 13 minutes after the report.
Total stocks of crude and its products have now increased in 11 out of the last 14 weeks. The International Energy Agency and the EIA said this week they expect that kind of oversupply to persist for months, keeping prices low. And the Organization of the Petroleum Exporting Countries earlier Wednesday cut its forecasts for global oil-demand growth, citing lower consumer appetite in places like Russia and Brazil despite low prices.
Rallies are "simply providing fresh selling opportunities," Mr. Ritterbusch said. "Once the market realized (the draw on crude storage) didn't mean (anything) in the grand scheme of things, it came back down."
Lower oil prices are generally considered a boon to oil consumers and more broadly for the global economy. But this time around, "the overall negative effect from the sharp decline in oil prices since mid-2014 has outweighed benefits in the short term," OPEC said.
Despite lackluster appetite for its commodity, OPEC has continued to pump at full tilt. The group said its production rose 131,000 barrels a day to 32.33 million barrels a day in January, driven by higher output from Nigeria, Iraq, Saudi Arabia and Iran.
Industry executives gathered at the International Petroleum Week in London remain largely bearish. Oil major BP PLC Chief Executive Bob Dudley said he expected the oil market to begin to balance itself in the second half of this year, but stated that a $100 a barrel-plus market won't return in the near future.
Industry players and many analysts are holding out for a supply-side response with production closures or cuts.
"The big story is still that most of the industry is not viable at [this] level, so we know we're going to rise at some point," said Paul Horsnell, head of commodities at Standard Chartered Bank. "The question is, how long do we stay at low prices and what kind of signs does the market need to see."
Benoît Faucon, Ese Erheriene and Biman Mukherji contributed to this article.
By Timothy Puko