Oil prices ease with supply glut back in focus

By Amanda Cooper

LONDON (Reuters) - Oil prices dipped on Thursday after ballooning U.S. crude inventories and a lack of any fresh action from the world's largest producers to control supply overshadowed some of the bullish sentiment that has built up this week.

International benchmark Brent futures fell by 27 cents to $36.66 a barrel by 1455 GMT, while U.S. crude futures fell 11 cents to $34.55.

U.S. crude inventories rose 10.4 million barrels to a fresh record of 517.98 million barrels last week. [EIA/S]

Meanwhile around 1 million to 2 million barrels of crude are being produced globally every day in excess of demand, contributing to a 70 percent fall in oil prices since mid-2014.

"Prices must fall once again to reach bottom in a way that really shuts down production. I don't think a freeze is the solution," Natixis commodities strategist Abhishek Deshpande said.

"That is the only true way of really turning around prices sustainably and for good ... once that happens, there will be a true turning point and, for me, that kind of bottom is still below $25."

An agreement struck in February by some big producers, led by Russia and Saudi Arabia, to freeze output at January levels is expected to do little to reduce the oversupply, not least because output in the first month of the year was at, or near, record highs.

"We continue to remain wary of possible rallies," said Daniel Ang of brokerage Phillip Futures.

Prices have risen since February thanks to slowing U.S. output and signs of financial distress among the higher-cost producers that might signal further supply cuts.

U.S. crude output fell for a third month in December, as struggling oil companies succumbed to the price rout.

Market watchers have said there has been more bullishness spreading through the market, which has helped the oil price withstand potentially bearish surprises.

"The fact that the market is taking such longer-term aspects into account rather than looking solely at near-term inventory trends suggests that sentiment is shifting on the oil market," Commerzbank said in a report.

"Just a few weeks ago the figures published yesterday would have put severe pressure on oil prices," the bank added.

Seasonally, the second quarter of the year tends to be one of the weakest, as spring refinery maintenance cuts crude demand.

Reuters data shows on average over the last 15 years Brent has gained 4.9 percent in the second quarter, compared with an average gain of nearly 7.5 percent in the third quarter, usually the strongest in terms of price performance.

(Additional reporting by Henning Gloystein and Manesha Pereira in Singapore; Editing by Dale Hudson, Greg Mahlich)