Oil futures declined immediately after the latest inventories data, but quickly rebounded strongly with OPEC cuts and expectations of stronger demand from China helping to underpin prices.
There was a larger than expected build of 4.1mn barrels in the latest Energy Information Administration (EIA) inventories data compared with consensus forecasts of a 1.1mn increase.
There was a draw in Cushing inventories, but fuel inventories increased sharply for the second successive week with gasoline inventories rising 5.0mn barrels and distillate 8.4mn barrels. The generally bearish report was completed by an increase in output of 2% for the week. Refinery use increased further, which could either signal strong demand or suggest that production is now too high.
Oil futures dipped immediately after the data with WTI futures dipping below $51.00 p/b before rallying strongly on no clear fundamental considerations, although a squeeze on short positions was clearly in evidence.
WTI futures pushed to highs around $52.70 with a weaker dollar following US President-elect Trumpâ€™s press conference also contributing to the more favourable tone for crude.
Volatilities eased later in the US session with WTI settling just above $52.00.
Prices drew further support on Thursday from positive comments by the Saudi Oil Minister Khalid al-Falih, who stated that the OPEC deal would accelerate rebalancing in the global oil market with prices likely to respond later in the year.
Kuwait announced that it had exceeded the target cuts in output and there were comments from Iraq that oil exports would be cut by a further 40,000 bpd over the next week, which would take the cumulative reduction to 210,000 bpd.
On the demand side, there were expectations of a strong increase in Chinese crude demand, especially with car sales increasing to a record high of 28.0mn in 2016.
Prices moved higher again during the European morning with February WTI futures strengthening to near $52.90 ahead of the US open with March Brent at $55.85 p/b.
Volatility is likely to remain at elevated levels in the short term, especially with significant dollar turbulence. Markets will continue to monitor overall trends in supply and demand with underlying risk conditions also likely to play an important role. Fears over aggressive US trade policies would tend to undermine confidence in rising oil demand, which would damage prices.