NEW YORK (Reuters) – Oil prices rebounded from earlier losses, although they were still down on the session, after the Energy Department reported a larger-than-expected decline in U.S. inventories and a falloff in weekly production on Thursday.
The market was still under pressure, though, from a bearish outlook by the International Energy Agency, which lowered its forecast for oil demand for 2018.
Oil has strengthened in recent weeks due to a sharp drawdown in distillates feeding expectations for renewed demand, but it is unclear whether U.S. crude prices will regain the high of nearly $53 a barrel reached in late September.
Brent crude oil was down 62 cents at $56.32 a barrel by 1:43 p.m. ET. U.S. light crude was down 67 cents to $50.63 a barrel. Both benchmarks have risen more than 20 percent from their lows in June as world oil markets tightened.
Crude inventories fell by 2.7 million barrels in the week to Oct. 6, compared with analysts’ expectations for a decrease of 2 million barrels. Distillate stocks fell by 1.5 million barrels, short of expectations for a drop of 2.2 million barrels.
The International Energy Agency said on Thursday demand for OPEC oil would be 32.5 million bpd next year – around 150,000 bpd lower than the group pumped last month.
Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt, said the tone of the IEA report was bearish because it suggested that demand for OPEC crude next year would not be sufficient to absorb all the available supplies.
“This means OPEC must deepen its production cuts to finish its job of bringing oil stocks back to the five-year average,” Fritsch said.
U.S. crude inventories are still 13 percent above five-year averages headed into the busy winter season, despite efforts by OPEC to cut production.
The OPEC-led deal helped lift oil from below $30 a barrel early last year. But traders say supplies remain ample and OPEC is widely expected to extend its cuts beyond the current expiry date of end-March 2018.
“There is little doubt that leading producers have re-committed to do whatever it takes to underpin the market,” the IEA said in a report on Thursday.
High U.S. production is pushing increasing volumes of U.S. crude into world markets, feeding inventories and undermining OPEC’s efforts to tighten the market. U.S. exports fell in the most recent week to 1.27 million bpd, but U.S. exports have still exceeded 1 million barrels a day for three straight weeks, the first time this has happened.
Traders have expressed concerns of late that the United States will at some point reach its export capacity, though that has not been hit yet.
“Additional U.S. supplies will weigh on Brent prices, and this will also encourage more production in the U.S.,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.
Many analysts expect Brent to stay between $50 and $60 a barrel as long as global markets stay balanced.
“Our updated global supply-demand balance … shows peak stock draws in 3Q17,” Goldman Sachs said in a note to clients.
The U.S. bank said oil supply and demand fundamentals meant it expected Brent to average $58 a barrel in 2018.