US crude settles down 2.3% at $49.77 on output cut doubts and rising US fuel stockpiles

Pipeline and crude storage tanks in Cushing Oklahoma.
Justin Solomon | CNBC

Oil prices eased on Wednesday on bearish U.S. petroleum inventory data and doubts that production cuts promised by OPEC and Russia would be deep enough to end a supply overhang that has weighed on markets for more than two years.

North Sea Brent crude oil was down 90 cents a barrel, or 1.7 percent, at $53.03 by 2:37 p.m. ET (1937 GMT). U.S. light crude settled down $1.16, or 2.3 percent, at $49.77 a barrel.

The U.S. Energy Information Administration EIA said crude inventories fell 2.4 million barrels during the week ended Dec. 2, which was more than the 1 million-barrel draw analysts forecast in a Reuters poll.

Stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures, however, increased by a hefty 3.8 million barrels last week, the most since 2009, the data showed.

Gasoline stocks rose by 3.4 million barrels, compared with analysts' expectations in a Reuters poll for a 1.9 million-barrel gain. Distillate stockpiles, which include diesel and heating oil, were up by 2.5 million barrels, versus expectations for a 1.8 million-barrel increase, the EIA data showed.

Forecast higher oil prices next year: BMI Research

"The report was bearish despite the overall crude oil drawdown," said John Kilduff, partner at energy hedge fund Again Capital LLC in New York, noting increases in refined products inventories.

Before the EIA released its report, the market was already lower on doubts the output cuts announced by the Organization of the Petroleum Exporting Countries last week would be enough to rebalance the market.

Oil prices surged as much as 19 percent after OPEC and Russia announced last week that they would cut production next year in an effort to prop up markets.

"This market is marking time overnight as the OPEC agreement appears fully priced for the time being," Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.

"From here, the market is likely to be taking a wait and see approach until evidence of actual OPEC curtailments is seen in about six or seven weeks," Ritterbusch said.

Since the deal was announced, OPEC and Russia have reported record production and output elsewhere is also resilient.

The EIA said on Tuesday it expected U.S. crude oil production for 2016 and 2017 to fall by less than previously expected.

Will OPEC cheat on deal?

OPEC and non-OPEC oil producers meet this weekend in Vienna to agree details of the output cut, which targets an overall reduction of around 1.5 million barrels per day (bpd).

OPEC member Nigeria, exempt from the cuts, said on Wednesday it hoped to boost its oil production to 2.1 million bpd in January, up from 1.9 million bpd now.

Despite widespread skepticism, many analysts say 2017 will likely see a more balanced oil market.

"Oil markets are on track to tighten over 2017, which will be accelerated by OPEC's decision to reduce production alongside non-OPEC countries," said BMI Research. "If effectively implemented, we expect the global oil market will return to balance in Q1 2017."

Oil production has been outpacing consumption by 1 to 2 million barrels per day since late 2014.

— CNBC's Tom DiChristopher contributed to this report.