Oil prices rose more than 2% on Wednesday, supported by a sharp drop in U.S. crude inventories, but further gains were limited as OPEC and its allies are set to ease supply curbs from August as the global economy gradually recovers from the coronavirus pandemic.
Prices were boosted after data from the Energy Information Administration showed U.S. crude inventories fell 7.5 million barrels last week, compared with analysts' expectations in a Reuters poll for a 2.1 million-barrel drop.
"The story of the report is we will see more draws in the coming weeks," said Phil Flynn, analyst at Price Futures Group.
"We will see tightening of supplies and the market is signalling that we are going to need more oil pretty soon, probably by August."
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have been cutting output since May by 9.7 million barrels per day (bpd), or 10% of global supply, after the virus destroyed a third of global demand.
After July, the record cuts are due to taper to 7.7 million bpd until December.
Saudi Arabia's energy minister Prince Abdulaziz bin Salman said OPEC+ was moving to the next phase of its oil cut pact when the group is expected to ease their reductions as oil demand recovers.
Russian Energy Minister Alexander Novak said a partial restoration of production would benefit the market and that Russia would raise oil output by around 400,000 bpd from August.
"OPEC+ managed to orchestrate the greatest balancing act ever seen in oil market history. But now, the alliance is ready to start concluding the show," said Rystad Energy's senior oil markets analyst Paola Rodriguez-Masiu.
On Tuesday, OPEC said it saw demand recovering by 7 million bpd in 2021 after falling by 9 million bpd this year.
The global benchmark Brent has recovered to about $43 a barrel from a 21-year low below $16 in April. The rebound in prices has allowed some U.S. producers to resume suspended production, a move that is set to weigh on OPEC's decision on Wednesday.
Prices were also supported by promising early data for a potential COVID-19 vaccine, but the resurgence of the coronavirus in the United States and other countries still kept traders on edge.
"Although the demand for crude has jumped in recent weeks, rising coronavirus cases in the United States along with some cities in other major economies reimposing shutdowns have the potential to hit demand," Lukman Otunuga, Senior Research Analyst at FXTM.