TORONTO Oil rose more than 3 percent on Wednesday in thin, pre-holiday trading, buoyed by a surprise drop in U.S. crude inventories, but prices stayed near multi-year lows as global supplies remained abundant and OPEC lowered the demand outlook for its exports.
Ahead of the Christmas holiday on Friday, volume in the front-month U.S. crude contract was around 265,000 lots by midday, slightly less than the 294,000 lots on Tuesday, according to Thomson Reuters Eikon data.
At 12:40 p.m. EST (1740 GMT), West Texas Intermediate futures CLc1 were up $1.38 at $37.52 a barrel, while Brent crude futures LCOc1 were up 99 cents at $37.10 a barrel.
A day earlier Brent touched $35.98, its lowest since July 2004.
U.S crude inventories fell 5.88 million barrels to 484.78 million last week compared with a forecast rise of 1.4 million, the Energy Information Administration (EIA) said.
"The inventory draw painted a good picture for the bulls because it was larger than a lot of people were expecting," said Oliver Sloup, director of managed futures at iiTrader.com in Chicago. "It's prompting some short covering going into the holiday week and we're seeing some house cleaning by a lot of traders."
On Wednesday, the front-month WTI contract traded as much as 56 cents over Brent, inverting a long-standing discount following last week's signing into law a bill repealing the decades-old U.S. crude ban.
Although no immediate large-scale exports are expected, Enterprise Products Partners on Wednesday said it won its first contract to export U.S. crude oil for trader Vitol in what may become the first such cargo.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) in a report on Wednesday forecast that demand for its crude would be lower in 2020 than in 2016 as rival producers prove more resilient than expected in a low oil price environment.
It forecast 2020 demand for OPEC crude at 30.7 million barrels per day (bpd) versus 30.9 million bpd in 2016 and about 1 million bpd less than it is currently producing.
Saudi King Salman said on Wednesday the kingdom was concerned about the stability of the oil market, but added that Saudi Arabia remained committed to further exploration activities in the oil and gas sectors. and
Iran is expected to add 500,000 bpd of crude exports next year and Iranian officials have already met with Indian refiners seeking proposals on how to make their crude more competitive.
(Additional reporting by Ahmad Ghaddar in London; Henning Gloystein in Singapore; editing by Jason Neely and David Evans)