Oil turns positive despite record high U.S. crude stocks

Oil turns positive despite record high U.S. crude stocks
FILE PHOTO – A drop of diesel is seen at the tip of a nozzle after a fuel station customer fills her car’s tank in Sint Pieters Leeuw December 5, 2014. REUTERS/Yves Herman

(Reuters) Oil turned positive Wednesday, brushing off a bearish increase in U.S. crude inventories to record highs and returning focus to OPEC’s record compliance with its supply-cut accord.

U.S. crude stocks rose 9.5 million barrels last week, the U.S. Energy Information Administration (EIA) said, nearly three times more than forecasts, but confirming a trade group’s report of a larger-than-expected build late Tuesday.

U.S. crude inventories hit a peak at 518.12 million barrels while gasoline stocks also touched a record, rising 2.8 million barrels to 259.1 million barrels, according to the EIA.

“The U.S. witnessed yet another week of higher-than-expected stock builds; nonetheless, the build was less than last week’s, which helped prices recouping some of the earlier losses,” said Abhishek Kumar, Senior Energy Analyst at Interfax Energy’s Global Gas Analytics in London.

“A build in gasoline stock is in tandem with season norms and further builds are expected in the coming weeks as demand for the fuel remains low.”

Brent crude futures rose 27 cents to $56.24 a barrel by 10:56 a.m. Eastern (1556 GMT). U.S. crude futures rose 24 cents to $53.44 a barrel, a 0.5 percent gain.

To support prices, the Organization of the Petroleum Exporting Countries and other producers, including Russia, are cutting output by almost 1.8 million barrels per day in the first half of 2017.

Although OPEC has made a strong start in complying with the cuts, rising U.S. stocks and a revival of U.S. oil output have limited the price rise.

Oil was also pressured by a strong U.S. dollar .DXY after Federal Reserve Chair Janet Yellen signaled a faster pace of interest rate rises. Gains in the dollar make oil more expensive for holders of other currencies.

OPEC in January delivered record compliance of over 90 percent with its output curbs, according to estimates from the International Energy Agency and figures collected by OPEC’s headquarters.

Within OPEC, adherence is mixed. Top exporter Saudi Arabia, keen to make the deal work, said it cut output by more than the amount called for by the agreement.

BMI Research, in a report, said a compliance rate of just 40 percent by Iraq, OPEC’s second-biggest producer, “could prove problematic to group cohesion.”

Russia and the other non-OPEC producers have so far delivered smaller cutbacks. The oil minister of Oman, one of the participating non-OPEC countries, said he expected compliance to improve.

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