Oil prices dropped on Wednesday after the US government reported an unexpected increase in crude and gasoline stockpiles, but an increase in refining runs and a drawdown in distillates helped prices bounce off session lows.
U.S. West Texas Intermediate (WTI) crude was at $55.10 per barrel, down 60 cents, or over 1 percent.
"Crude prices dropped dramatically after the IEA forecast a gloomy outlook for the near future".
American crude stockpiles climbed by 1.85 million barrels last week to 459 million barrels, and production extended gains to an all-time high 9.65 million barrels a day, the Energy Information Administration said Wednesday.
Warmer weather, rising non-OPEC output threaten oil market balance
The demand slowdown could mean world oil consumption may not, as many expect, breach 100 million bpd next year, while supplies are likely to exceed that level.
"The oil market faces a hard challenge in the first quarter of 2018, with supply expected to exceed demand by 600,000 barrels a day followed by another, smaller, surplus of 200,000 barrels a day in the second quarter", the IEA said.
"Overall, the report is somewhat supportive because it was not as bearish as the previous API report last night - that is why we are slowly digging our way out of the downside seen earlier this morning", said Phil Flynn, senior energy analyst at Price Futures Group in Chicago.
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Meanwhile, Russia believes it's too early to announce a possible extension to output cuts at the group's producer meeting, according to two people with knowledge of the matter.
Finally, a greater share of shorter cycle investments on the supply side will make it easier for supply "to follow demand quickly and therefore for price to get closer to the cost of the marginal barrel", the IEA explained. The latest government data is due on Wednesday.
Meanwhile, domestic United States oil output rose by another 25,000 barrel a day to 9.645m b/d.
As welcome as these projections are for the USA oil and gas industry, they should be taken with a grain of salt, as renewable energy sources like solar continue to get more affordable.
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Opec has yet to show it has convinced Russian Federation, one of its partners in the deal, that a decision to prolong output cuts is needed when the group meets in Vienna later this month.
In May, Opec producers agreed to extend production cuts for a period of nine months until March, but stuck to production cuts of 1.2 million bpd agreed in November past year.
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