Crude prices edge up on dip in crude inventories, but glut still bites

Crude oil prices edged up early on Thursday, supported by a fall in US crude inventories after 10 straight weeks of builds, but a global oversupply and cheap oil are still dominating the broader market.

Crude inventories fell 3.6 million barrels in the week to December 4, compared with analysts' expectations for an increase of 252,000 barrels, US Energy Information Administration (EIA) data showed.

This, along with signs of dipping US production, lent prices some support.

US crude futures were at $37.40 per barrel at 0106 GMT, up 24 cents from their last settlement, but still not far off this week's seven-year lows below $37 per barrel. Prices are down over 11% since the beginning of December.

Internationally traded Brent futures were at $40.35 a barrel, up 24 cents.

"Energy markets still remain vulnerable to further weakness, with the focus firmly on OPEC," ANZ bank said on Thursday.

The Organization of the Petroleum Exporting Countries last week decided not to cut production in defence of prices. It also ditched even formal output quotas as member states compete for market share amongst each other and with outside competitors like Russia and North American shale drillers.

Between 0.5 and 2 million barrels of crude oil are being produced in excess of demand every day, creating a glut that has pulled down prices by almost two-thirds since 2014 and which is threatening a situation known as "tank-top", in which the market runs out of available storage facilities.

"Oil markets are likely to run out of onshore crude storage in 1Q16," PIRA Energy said this week.

Despite an expected fall in US production next year, BMI Research said on Thursday that global output was forecast to rise by 500,000 barrels per day in 2016.

"We have downgraded our Brent oil price forecast from $54 per barrel to $51 per barrel for 2016 on the basis of a weaker end to 2015 than previously anticipated. Similarly, we have downgraded WTI to $50 per barrel from $51 per barrel previously," BMI said on Thursday.

"In particular, we see potential for a temporary undershoot by prices to 2008 financial crisis lows around $36 per barrel for Brent," it added.

BMI, a subsidiary of rating agency Fitch Group, said it saw "a soft recovery from 2017", but an ongoing supply surplus in the market would keep oil prices range-bound in the mid-50s until 2018.