Oil prices climbed from three-month lows on Wednesday, lifted by a surprise drawdown in U.S. inventories and helped by figures from the International Energy Agency (IEA) suggesting OPEC cuts should push the crude market into deficit in time.
“For those looking for a rebalancing of the oil market the message is that they should be patient, and hold their nerve,” the IEA said in its monthly report.
At 1000 GMT, Brent futures were up 77 cents at $51.68 on the day, after tumbling to $50.25 in Tuesday’s session, a low since Nov. 30.
U.S. West Texas Intermediate crude traded up 85 cents at $48.57 a barrel, having risen over a dollar earlier. On Tuesday, it slid as low as $47.09, another low since November.
The IEA reported global inventories rising in January for the first time in six months despite OPEC cuts since Jan. 1, but said if OPEC stuck to limits the market should see a deficit of 500,000 barrels per day (bpd) in the first half of 2017.
“As long as OPEC stays on track and non-OPEC delivers on their agreed cuts, the market will continue to balance,” said Ole Hansen, head of commodity strategy at Saxo Bank.
The Organization of the Petroleum Exporting Countries said at the end of November it would cut 1.2 million bpd during the first half of 2017, and then in December reached a deal with non-OPEC producers to cut about 600,000 bpd from their output.
Despite OPEC compliance with its share of cuts, stockpiles have continued to rise, in part because OPEC members pumped heavily before cuts kicked in and also because U.S. shale producers have hiked output as Brent spiked above $58 in January. Oil prices have now given up the gains.
Investors were alarmed earlier in March when data from the American Petroleum Institute (API) showed a big jump in U.S. inventories to a record 529.6 million barrels. But API’s latest weekly report on Tuesday showed a surprise fall to 529.1 million barrels, defying forecasts of another rise.
Harry Tchilinguirian, global head of commodity strategy at BNP Paribas, said the IEA was encouraging calm among investors.
“It is really just words to assuage impatience in the market, highlighting it takes time for production restraints to filter through in the form of inventory reductions,” he said.
On Tuesday, prices had been hit hard by an OPEC report showing a rise in global crude stocks and a surprise output jump from OPEC’s biggest member, Saudi Arabia.
Secondary sources had said Saudi output fell in February to 9.797 million barrels per day (bpd), but Riyadh told OPEC it rose to 10.011 million bpd.
Saudi Arabia played down the figures, saying its supplies to the markers were effectively stable during January and February.