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 Brent crude had gained ground by midday, on track for its strongest
March since at least 2007. U.S. crude earlier in the day fell to a
more than two-week low, but it was set for its biggest March rally
in 14 years.
Brent crude futures were trading 45 cents higher at $39.71 a
barrel at 1130 GMT.
The front-month contract for U.S. crude futures was flat at $38.32 a
barrel, after dropping to $37.57, the lowest since March 16.
Still, high global stocks put the sustainability of the gains in
question -- data on Wednesday showed that U.S. crude stocks reached
yet another record high last week despite an 11-year high in
seasonal refinery utilisation.
"The door is open for lower prices," said Hamza Khan, head of
commodity strategy with ING. "There's a backlog of oversupply that
needs to be worked out of the system."
U.S. crude stockpiles rose by 2.3 million barrels to 534.8 million
barrels in the week to March 25, the seventh week at record highs,
data from the U.S. government's Energy Information Administration
showed. [EIA/S]
Crude prices have risen about 50 percent since mid-February on
optimism over a proposal by several major oil-exporting countries to
freeze production and signs of falling U.S. output.
Oil analysts in a Reuters poll also raised their average price
forecasts for 2016 for the first time in 10 months, but also
cautioned the rally could fade near term.
In the past week, oil prices had started to track lower.
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OPEC crude output rose in March to 32.47 million bpd from 32.37
million bpd in February, according to a Reuters survey, while Iran
is expected to add another half a million bpd of oil within a year.
Elsewhere in Asia, the sustained weakness in oil prices has
suppressed upstream oil and gas production, consultancy BMI Research
said. It said in a report weaker prices are "limiting opportunities
to stem natural declines in ageing assets."
But the recent rally has allowed U.S. producers to hedge their
production at higher prices, which could keep more of them from
shutting down.
"It's hard to see how we could sustain this rally," said Harry
Tchilinguirian, global head of commodity market strategy with BNP
Paribas, adding that the price rise "contained the seeds of its own
demise."
(Additional reporting by Keith Wallis in Singapore; Editing by Dale
Hudson and David Evans)
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