Oil prices ended in positive territory on Monday after a drop in stockpiles at the delivery point for U.S. crude in the second half of last week outweighed pressure from near record high production in Saudi Arabia.
Tensions after the dispatch of U.S. Navy ships to waters near Yemen and an alert issued by Saudi Arabia for a possible militant attack also put a floor beneath U.K. North Sea Brent and U.S. crude prices, traders said..
Brent, the more widely-referenced benchmark, settled flat at $63.45 a barrel, after falling more than $1 earlier in the session.
U.S. crude finished up 64 cents at $56.38, after swinging in a band of more than $2.
"There were certainly competing influences, with the U.S. crude draw inspiring the bulls, while the bears pounced on the record high Saudi output," said John Kilduff, partner at New York energy hedge fund Again Capital.
Oil services firm Genscape reported a drop of more 900,000 barrels at the Cushing, Oklahoma delivery point for U.S. crude between Tuesday and Friday last week, market sources who saw the data said. For the week to Friday, Genscape reported a build of about 350,000 barrels, they said.
Speculation has been rife that rapidly climbing U.S. crude supplies would soon cause storage tanks in Cushing to top, leaving little or no room for more barrels. The drop reported by Genscape eased some of that anxiety, traders said.
Crude prices have risen around 17 percent since April began, on speculation about falling U.S. output as the domestic oil rig count hit 2010 lows.
But Wall Street bank and major energy trader Morgan Stanley said the drop could be outweighed by increases in Saudi production.
"We worry about the market's fixation on the U.S.," Morgan Stanley said in a note.
"Saudi Arabia alone added the equivalent of half of Bakken production in a matter of months – far beyond any U.S. slowdown," the note said.
Bakken, the third largest U.S. shale field by production, turns out around 1.3 million barrels per day.
Saudi oil minister Ali al-Naimi told Reuters in Seoul on Monday that the No. 1 crude exporter expected to produce at near record highs of around 10 million bpd in April.
"I have said many times we will always be happy to supply to our customers with what they want," Naimi said. "Now they want 10 million."
(By Barani Krishnan; Additional reporting by Himanshu Ojha in London and Henning Gloystein and Jacob Gronholt-Pedersen in Singapore; Editing by William Hardy, Alison Williams, Grant McCool)