Oil prices recovered slightly after Tuesday’s sell-off on data from the US Energy Information Administration showing demand for distillates rose to the highest levels since January 2003.  Nexen photo.

US oil prices up over 2 per cent

Oil prices gained back some of Tuesday’s losses, rising over 2 per cent, after data released by the US Energy Information Administration showed strong demand for refined products.

By 2:37 p.m., EST, Brent crude futures rose 60 cents to $56.86, down from a session high of $57.87/barrel.  US WTI futures climbed $1.20 to $47.80/barrel, short of a session high of $47.80/barrel.

Investors concerns about weakening demand and oversupply are kneecapping gains in prices.

According to the EIA, crude inventories fell by 497,000 barrels in the week to Dec. 14, smaller than the 2.4 million barrels analysts had predicted prior to the data release.  The fall in crude stocks was the third consecutive decline, according to the agency.

Meanwhile, the EIA reported that distillate stockpiles, including diesel and heating oil, dropped by 4.2 million barrels.  Analysts had forecast an increase in distillates of 573,000 barrels.

According to the EIA, distillate demand rose to the highest level since January 2003, boosting buying, particularly in heating oil futures.  Heating oil futures rose 3.3 per cent to $1.8106 per gallon.

“The complex is piecing together a modest advance so far today but only one that offsets a minuscule portion of recent losses,” Reuters reports Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

On Tuesday, Brent fell 5.6 per cent, landing just above a 14-month low hit during the session.  WTI dropped by 7.3 per cent, its lowest since August 2017.

Financial markets were under pressure on concerns over a possible increase in US interest rates which could slow domestic growth.  On Wednesday, the US Federal Reserve voted to increase interest rates to a range of 2.25 and 2.5 per cent.  This is the fourth increase in interest rates by the Federal Reserve in 2018.

OPEC and its supply cut allies, including Russia, agreed earlier this month to cut their production by a total of 1.2 million barrels per day (b/d) to cut down the current oversupply of crude and increase oil prices.

Saudi Arabia’s energy minister, Khalid al-Falih said on Wednesday that he expects worldwide oil inventories to drop by the end of the first quarter of 2019.  The OPEC oil supply agreement will begin next month.

However, Russia, the United States and Saudi Arabia have recently posted near or record highs for crude production.  An industry source told Reuters that Russian crude output is running at a record high 11.42 million b/d so far this month.