Oil up from four-month lows, inventories curb recovery

[March 23, 2017]  By Edmund Blair

LONDON (Reuters) - Oil prices rallied from four-month lows on Thursday but the recovery was cautious with investors concerned that OPEC-led supply cuts were not yet reducing record U.S. crude inventories.

Brent crude, the international benchmark for oil, was trading at $51.02 a barrel by 1112 GMT (7:12 a.m. ET), up 38 cents on the day and rebounding from Wednesday's slide to $49.71, it lowest level since Nov. 30 when OPEC announced plans to cut output.

U.S. light crude was up 36 cents at $48.40.

Brent remains well below this year's high above $58, hit shortly after Jan. 1 when the deal between the Organization of the Petroleum Exporting Countries and non-OPEC states to curb supplies by 1.8 million barrels per day (bpd) came into effect.

"I think today's strength is temporary," said Tamas Varga, analyst at London broker PVM Oil Associates, saying sentiment was still under pressure from high inventory levels and climbing U.S. production as U.S. shale producers added rigs.

Global stockpiles have risen even with OPEC-led cuts. On Wednesday, data from the U.S. Energy Information Administration showed U.S. inventories jumped by a bigger-than-expected 5 million barrels last week to 533.1 million. [EIA/S]

While OPEC has broadly met its commitments to reduce output, non-OPEC producers have yet to fully deliver on pledged cuts and U.S. shale oil producers have been pumping more oil after crude prices recovered from last year's drop below $30.

An oil pump jack pumps oil in a field near Calgary, Alberta, Canada on July 21, 2014. REUTERS/Todd Korol/File Photo

Greg McKenna, chief market strategist at futures brokerage AxiTrader, said OPEC was "underwriting the investment plans and returns of their competition in U.S. shale oil".

He said oil prices could fall further due to U.S. output and a lack of compliance by some producers who said they would cut.

London-based Barclays bank offered a more upbeat assessment, saying the latest oil price weakness would not last into the second quarter. The bank forecast a modest recovery.

"We see a rebound to the high $50 and $60 range in Q2 as inventories draw and the market readies for the peak driving and demand season," the bank wrote in a note to clients.

It said inventories held by industrialized nations would be eroded by the end of the second quarter, sliding to OPEC's target level of the five-year average.

(Additional reporting by Henning Gloystein and Keith Wallis; Editing by Christopher Johnson)

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