Oil settles higher at $51.15, paring early gains after surprise rise in US crude stockpiles

Oil jack pumps in the Kern River oil field in Bakersfield, California.
Jonathan Alcorn | Reuters

Oil prices eased from one-month highs on Wednesday, as a surprise increase in U.S. crude inventories to a record high offset support from an outage at the largest UK North Sea oilfield.

Prices rose early, then turned negative after the U.S. government reported a weekly rise in crude inventories of 1.6 million barrels. Analyst had expected a decrease of 435,000 barrels, and the build reported by the Energy Information Administration came as a double surprise after an industry group had reported a draw.

"The crude build caught the market leaning the wrong way. Crude exports dropped to 575,000 bpd this week, versus over 1 million bpd last week," said David Thompson, executive vice-president at Powerhouse, a commodities-focused broker in Washington.

"The selling most likely includes a fair number of sell stops being hit."

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Brent crude had risen 22 cents to $54.39 a barrel by 2:34 p.m. ET (1834 GMT), having earlier risen to $55.09, its highest level since March 8. U.S. crude settled Wednesday's session 12 cents higher at $51.15, after hitting a session peak of $51.88.

U.S. gasoline prices fell into negative territory and heating oil futures pared gains as EIA reported less-than-expected decreases in gas and distillate fuel oil inventories.

Oil prices had risen early after the American Petroleum Institute reported late on Tuesday that inventories fell by a more-than-expected 1.8 million barrels last week.

"Yesterday's API report gave the market a bullish head-fake via three chunky draws, hence a build to crude stocks and minor draws to the products is causing a tempering of bullish optimism," said Matt Smith, director of commodity research at ClipperData in Louisville, Kentucky.

Prices also drew support from an outage at the 180,000-barrels-per-day Buzzard field in the North Sea.

An output cut from Jan. 1 led by the Organization of the Petroleum Exporting Countries has helped Brent recover from a 12-year low near $27 last year, although rising U.S. output and stubbornly high stocks have limited the rally.

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Saudi Arabia cut the May official selling prices (OSP) for its light crude oil for Asian customers, in line with expectations, but raised the price for oil sales to the United States.

OPEC and non-OPEC producers, including Russia, together cut supply by about 1.8 million bpd for six months until June, and are considering whether to extend the agreement.

The inventory surplus is likely to decline even without a prolonged cut, analysts at JBC Energy said.

"In the event of OPEC/non-OPEC not extending the cuts into the second half, the world would still continue to draw stocks at a mild pace of about 200,000 bpd until September, thereby lending support to prices one way or another," JBC said.

Still, a rise in U.S. output is likely to pressure prices, analysts said.

— CNBC's Tom DiChristopher contributed to this report.