Oil prices dip on rising US fuel stocks; OPEC supply cuts support market

Traders said prices fell after a 9.2 million barrel rise in gasoline stocks in the week ended December 1

Oil prices dipped on Wednesday, as refined product inventories in the United States rose in what the market interpreted as a sign of lacklustre demand.

Brent crude futures, the international benchmark for oil prices, were down 6 cents at $62.80 a barrel as of 0751 GMT.

US West Texas Intermediate (WTI) crude futures were at $57.50 a barrel, down 22 cents.

Traders said prices fell after an American Petroleum Institute (API) report late on Tuesday that showed a 9.2 million barrel rise in gasoline stocks in the week ended December 1, and an increase of 4.3 million barrels in distillate inventories, which include motor diesel and heating oil.

The perception that the higher fuel stocks pointed to weak demand outweighed a drop in crude inventories by 5.5 million barrels to 451.8 million barrels, traders said.

Outside the United States, analysts said supply cuts by the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers - last week extended to all of next year - have helped lift Brent prices by more than 40 per cent since June, and more than 130 per cent since early 2016, when they hit their lowest level since 2003.

With the supply cuts likely in place throughout 2018, analysts said crude prices were well supported.

"Robust global demand and tight supplies should see Brent crude oil rise to $70 per barrel by mid-year (2018)," said Bank of America Merrill Lynch in its 2018 outlook.

One factor that could undermine OPEC's and Russia's effort to cut supplies and prop up prices is US oil production, which has risen by 15 per cent since mid-2016 to 9.68 million barrels per day, close to levels of top producers Russia and Saudi Arabia.

"US shale producers continue to win market share," said Fawad Razaqzada, analyst at futures brokerage Forex.com.

But weaker economic performance and a decline in refinery capacity utilisation in the first quarter could be a drag on oil demand and dampen prices, said Georgi Slavov, head of research at commodity broker Marex Spectron.

"Demand remains firm, which is the main reason for us to still see oil at/above $60 per barrel. This is likely to change as we approach 2018," Slavov said in a note.

"We are starting to pick up the weakness in the macro performance of key oil consuming regions. We are also starting to take note of the forthcoming January-February decline in refinery capacity utilisation," he said.

Despite this, some analysts said they expected refining margins to remain healthy into 2018.

"Refining margins will surprise to the upside in 2018 ... (because) we expect petroleum product demand growth of 1.3 million bpd on continued strength in the key light ends: gasoline and distillate," Bernstein Research said in a note to clients on Wednesday.