Oil prices rose again on Thursday, lifted by a sustained decline in inventories and as Saudi Arabia prepared to cut crude supplies to its prized Asian customers.
Crude is down nearly 7 per cent so far this year, suppressed in large part by concern that Opec and its partners may not be able to force global oil inventories to drop by cutting production.
Saudi Arabia said on Tuesday it would cut supplies to most buyers in Asia - the world's biggest oil-consuming region - by up to 10 per cent in September.
Brent crude futures were up 49 cents at $53.19 a barrel by 10.55 GMT, while US West Texas Intermediate crude was up 32 cents at $49.88.
Opec on Thursday raised its outlook for oil demand in 2018 and cut its forecasts for output from rivals next year, although another increase in the group's production suggested the market will remain in surplus despite efforts to limit supply.
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The physical market is also showing signs of stronger near-term demand, after having suffered from a persistent overhang of unused crude.
Prices for prompt deliveries of North Sea crude oil are at their smallest discount to future prices in nearly two years and a surplus of oil stored on ships is gradually dissipating, having hit two-year highs.
Inventories in the United States are at their lowest since October, having fallen for 10 of the last 12 weeks.
In a sign that investors are turning more optimistic about the pace at which oil supply and demand are rebalancing, prices for crude for prompt delivery are trading above those for delivery further in the future.
"This is the march toward the flattening of the curve," said SEB chief commodity strategist Bjarne Schieldrop.
"The major event now going forward is the Middle East and Asian refineries rushing back into operation and consuming more crude, just as Saudi Arabia says it will cut September deliveries to Asia," he said.
Opec boosted estimates for the amount it needs to supply in 2017 and 2018 by about 200,000 barrels a day for each year, according to a report from its secretariat in Vienna. Still, a rebound in Libyan production pushed the group’s output last month to the highest this year, undermining its plan to rebalance oversupplied world markets.
Brent futures have stabilised above $50 a barrel this month as US crude inventories diminish, signalling Opec’s actions are finally having some impact.
The organisation increased projections for global oil demand in 2017 and 2018 by about 100,000 barrels a day for each year. Consumption proved stronger than expected in developed nations during the second quarter, it said.
Opec also lowered estimates for rival supply, by 50,000 barrels a day in 2017 and 90,000 a day in 2018, following weak output in the US and Canada last quarter.
The report indicated that Opec’s strategy to rebalance the market is having some success, with oil stockpiles in developed nations falling by 21.9 million barrels in June.
Still, at just over 3 billion barrels, this leaves them about 252 million above their five-year average. Opec has said its main objective is to reduce inventories to average levels.
The plan has been complicated by a rebound in supply from Libya and Nigeria, which were exempt from last year’s agreement to cut production while they tackled domestic unrest and supply outages.
Libyan output climbed by 154,300 barrels a day to about 1 million a day in July, according to external data sources compiled by Opec. Production from all 14 members reached 32.87 million a day.
Iraq, which has lagged behind other nations in delivering its promised cuts, showed some improvement in its adherence. The country’s output fell by 33,100 barrels a day to 4.468 million a day, still above its target.
The Iraqi oil minister Jabbar Al Luaibi flew Wednesday to meet his Saudi counterpart Khalid Al Falih, who has promised to increase pressure on non-compliant nations.
While Opec uses external data - known as secondary sources - to monitor compliance with supply curbs, the report also includes production data submitted directly by member nations.
In an unusual omission, there was no direct data from Saudi Arabia for the latest month in this report. Secondary sources showed the kingdom’s output at 10.067 million barrels a day in July, slightly above its target.
Despite the production increases, the report indicated that Opec can make more significant progress in depleting inventories during the second half of the year.
If the group’s output remains steady at 32.87 million barrels a day, it would shrink global stockpiles by about 68 million barrels.
Global stocks remain above their longer-term averages and with the summer driving season nearly at an end, investors are well aware that the attempts by Opec, Russia and other producers to boost prices may bring unwanted side-effects.
"The minute Opec try to raise prices by cutting production, US producers will react accordingly to fill the void. This results in a tug of war that we have witnessed all year and the final outcome is a range-bound market," said Matt Stanley, a commodities broker at Freight Investor Services in Dubai.
