Crude oil futures rallied today to end a seesaw session more than a dollar higher and above $58 despite government inventory data showing crude oil and gasoline supplies rose last week and as February refined products contracts expired.
Light sweet settled up $1.14 to $58.14 -- the highest settlement since the first trading day of the year. For the month, oil fell 4.8% and is now 25% below its record close of $77.03 on July 14, 2006.
U.S. distillates stocks fell for the first time in seven weeks due to a cold snap in the U.S. Northeast, the world's largest heating oil market.
Distillates inventories fell 2.6 million barrels last week, the Energy Information Administration said, 400,000 barrels more than analysts' expectations.
"The decline in distillates stocks did not reflect the higher consumption and the cold weather because of high inventories built up before Christmas," said Joseph Arsenio of Arsenio Capital Management.
"If the cold weather persists over the next weeks, the market would need to replenish its supplies."
Private forecaster DTN Meteorlogix predicted temperatures next week to average below to well below normal in the U.S. Northeast.
Oil prices initially fell after the release of the EIA report as traders reacted to the larger-than-expected increase in U.S. crude stocks.
Crude supplies rose 2.7 million barrels, more than double expectations for a 1.1 million barrel increase. Gasoline supplies also jumped a larger-than-expected 3.8 million barrels.
"The market is testing the idea that this data was not bearish enough and focusing on things like the cold weather and the cuts in OPEC production," said Tim Evans of Citigroup Global Markets.
Oil prices surged more than 5% on Tuesday, the biggest jump since Sept. 19, 2005, on fund-buying ahead of a fresh OPEC output cut due Thursday, some analysts said.
The Organization of Petroleum Exporting Countries was set to reduce output by 500,000 barrels per day from Feb. 1, to add to a 1.2 million bpd cut from November.
Nigerian Oil Minister Edmund Daukoru said most of the group agreed that the cuts should be fully implemented before new measures are taken.
"There is a consensus to implement the cuts already announced, rather than announce further cuts. I think everybody agrees we have just got to comply," he told Reuters after a meeting in Abuja, the Nigerian capital.
Some analysts have said the cuts would be enough to prevent further rises in commercial crude inventories when demand falls in the Northern Hemisphere spring, although others are skeptical that producers will have the discipline to adhere to the cuts.
Algeria's energy minister, Chakib Khelil, said OPEC was expected to leave output unchanged when it holds its next scheduled meeting on March 15 in Vienna.