NEW YORK (Reuters) - Oil prices rose 1.3 percent on Thursday after much stronger demand in China overshadowed a downbeat report by the International Energy Agency (IEA) that showed higher production by key OPEC exporters.
“The market is trying to stabilize,” said Gene McGillian, manager of market research at Tradition Energy.
Prices had responded only minimally to data Wednesday showing U.S. crude oil inventories dropped last week by the most in 10 months.
“The market is having difficulty picking its head up,” McGillian said.
Oil prices have dropped in recent weeks to levels not seen since the end of last year as investors lost faith in a deal between OPEC and non-OPEC producers to reduce output, while U.S. shale oil production has risen sharply.
But there is evidence world oil demand is picking up, notably in the United States and China, the world’s two biggest oil consumers.
China imported 8.55 million barrels per day (bpd) of oil in the first half of this year, up 13.8 percent from the same period in 2016, making it the world’s biggest crude importer ahead of the United States.
“We are definitely seeing robust demand growth (in China),” said Neil Beveridge, senior oil analyst at Sanford C. Bernstein.
Rising demand is helping to drain a global fuel glut but rebalancing of the market is taking longer than anticipated.
The IEA said the oil market could stay oversupplied for longer than expected due to rising production and limited output cuts by some members of the Organization of the Petroleum Exporting Countries.
“Each month something seems to come along to raise doubts about the pace of the rebalancing process,” the IEA report said.
“This month, there are two hitches: a dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement.”
Oil inventories in industrialized nations remain high despite a modest drop in May. OECD stocks are still 266 million barrels above the five-year average, the IEA said.
OPEC said on Wednesday the world would need only 32.2 million bpd of its crude next year, down 60,000 bpd from this year and about 400,000 bpd less than it pumped in June.
OPEC has promised to curb production by about 1.2 million bpd between January this year and March 2018, while Russia and other non-OPEC producers say they will hold back half as much.
(This version of the story corrects U.S. light crude settlement price in second paragraph to $46.08)
Additional reporting by Henning Gloystein in Singapore, Aaron Sheldrick in Tokyo, and Ron Bousso and Christopher Johnson in London.; Editing by Elaine Hardcastle and Chris Reese
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