Oil heads towards 2015 highs despite ample supply

Brent crude oil headed towards 2015 highs above $68 a barrel on Thursday after official data showed the first drawdown in US crude inventories since January, evidence the market there is balancing after months of heavy oversupply.

US crude stocks fell by 3.9 million barrels last week, the first drop in four months, the Energy Information Administration said on Wednesday.

Stronger-than-expected demand growth and a slowdown in US crude supply have boosted oil prices by 50 per cent from a six-year low hit in January. “While the latest draw and the recent slowdown in weekly builds in crude stocks have been seen as positive for the oil price, crude stocks remain exceedingly high,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas.

Brent crude was up 27 cents a barrel at $68.04 by 1243 GMT. It hit a 2015 high of $69.63 on Wednesday.

US crude was up two cents at $60.95 a barrel. The contract had rallied more than $2 to a high of $62.58 in the previous session.

Tamas Varga, analyst at London brokerage PVM Oil Associates, said the oil market was focusing on the rise in US stocks and on civil war in Yemen, a conflict some analysts have suggested could disrupt oil production elsewhere in the Middle East Gulf.

Yemen is a tiny oil producer but lies to the south of Saudi Arabia, the world's biggest oil exporter, and Riyadh has been leading a coalition bombing Yemeni targets.

Saudi Arabia proposed a five-day humanitarian truce on Thursday after weeks of air strikes and fighting, but said a ceasefire depended on the Houthi militia and its allies also agreeing to lay down arms.

"Short-term fundamentals are considered bullish, even if medium-term fundamentals are more bearish," Varga said.

Although oil futures markets are buoyant, physical markets are much weaker and oversupplied.

Traders see a disconnect in markets, with tens of millions of West African, Azeri and North Sea barrels struggling to find buyers.

The world's biggest oil exporters in OPEC meet in Vienna next month but are not expected to adjust production.

A senior OPEC delegate indicated on Wednesday the group would stick to a strategy of pursuing market share.

The delegate told Reuters the cartel wanted "to bring major non-OPEC producers to the table" to help balance the market.

"But if they don't cut, OPEC is unlikely to cut alone. It has to be a real and clear commitment and with numbers."