Oil falls as rising inventories wipe out optimism over supply

Oil futures fell on Wednesday, after a surprise rise in U.S. inventories wiped out the optimism that had built up the day before over the potential for the world's largest exporters to cut output enough to stem a 19-month-long price slide.

Another contraction in industrial profits in top commodities consumer China, along with caution before the outcome of the U.S. Federal Reserve's first policy meeting of the year, knocked around $1 off the price of oil.

Oil prices bounced on Tuesday after senior OPEC and Russian officials stepped up vague talk of possible joint action to eliminate one of the largest surpluses in modern times.

Brent crude fell 55 cents to $31.25 a barrel by 0924 GMT, having risen by some 3% on Tuesday. U.S. crude futures fell 94 cents to $30.51 a barrel.

"We are going to through several times this spring. It's a terrible situation in the physical market and stocks are just going to pile up more, so we will get these reels down again. We haven't seen the end of that process of being 'deep in the ditch'," SEB analyst Bjarne Schieldrop said.

"Medium-term, there will be gradual improvement, but at least this first half of the year will be ugly."

U.S. crude stocks rose by 11.4 million barrels last week to 496.6 million, the American Petroleum Institute said, topping analyst expectations for an increase of 3.3 million barrels.

"The positive sentiment stemmed from strong U.S. corporate earnings and talk of OPEC and Russia considering production cuts. We consider the likelihood of any agreement between these parties as extremely low," ANZ said in a note.

"However, rising U.S. crude stockpiles are likely to remain a headwind in the near term."

That said, oil bulls are gradually starting to emerge, with this month's drop below $30.

The options market shows traders are buying up protection against a rise to at least $40 by the end of the year, and speculators have increased their bullish bets on the price through the futures market.

Also three U.S. shale oil companies have slashed their 2016 capital spending plans more than expected in a bid to survive the $30-a-barrel oil price.

Marco Dunand, the head of Mercuria, one of the world's biggest trading houses, said the market was close to rebalancing. Famed oil bull Andrew Hall, head of Astenbeck Commodities, said the market was ripe for a jump.