Oil rose as the shrinking size of US crude production gains and a falling dollar, which bolsters the appeal of commodities to investors, outweighed rising supply.
US crude production rose 3,000 barrels a day to 9.42 million in the seven days ended March 20, the Energy Information Administration said.
The smallest increase since January left output at the highest level in more than three decades. Prices retreated initially as the report showed that crude supplies increased 8.17 million barrels to 466.7 million last week, the most in records compiled since August 1982.
US oil explorers sidelined 41 drilling rigs last week, the smallest drop in three weeks and down from the average 59-rig weekly decline in February, according to data from Baker Hughes Inc.
The dollar dropped for the sixth time in eight days against the euro, bolstering raw materials denominated in the US currency.
“Output was up just 3,000 barrels a day, which seems to have caught the attention of the market,” Kyle Cooper, director of commodities research at IAF Advisors in Houston, said.
“Production might level off or even decline a bit but remain at a very high level. The fundamentals still look really bad and I think we’ll resume the move lower.”
West Texas Intermediate oil for May delivery rose 76 cents, or 1.6 percent, to $48.27 a barrel at 11:59 a.m. on the New York Mercantile Exchange. The volume of all futures traded was 20 percent below the 100-day average for the time of day.
Brent for May settlement rose 70 cents, or 1.3 percent, to $55.81 a barrel on the London-based ICE Futures Europe exchange. Volume was down 22 percent from the 100-day average. The North Sea oil traded at a $7.54 premium to WTI.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its most-traded peers, retreated 0.2 percent.
Nationwide crude supplies were projected to climb 4.75 million barrels last week, according to the median of eight analyst estimates in a Bloomberg survey.
“The crude oil inventory build was off the charts again,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The unrelenting supply fundamentals are going to continue to weigh on the market.”
The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S.
Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, climbed 1.91 million barrels to a record 56.3 million in the week ended March 20, according to the EIA.
“There’s anywhere between 65 and 75 million barrels of capacity at Cushing depending on who you ask,” Cooper said. “At this rate we will be at capacity in a few weeks,”
Supplies of gasoline fell 2.01 million barrels to 233.4 million. Inventories of distillate fuel, a category including diesel and heating oil, declined 34,000 barrels to 125.8 million.
Gasoline futures for April delivery rose 2.33 cents, or 1.3 percent, to $1.823 a gallon. April ultra low sulfur diesel added 0.5 percent to $1.7141.
The US average retail price of regular gasoline rose 0.2 cent to $2.421 a gallon Tuesday, according to AAA, the nation’s biggest motoring group.
The Organization of Petroleum Exporting Countries, which resisted calls to reduce production at a November meeting, will probably maintain its collective quota when it next meets in June, according to Facts Global Energy, a research company.
Oil prices will continue to fall in the second quarter as refineries shut for maintenance, FGE said. Demand will slow and send Brent as low as $35 a barrel, Fereidun Fesharaki, the chairman of FGE, told a conference Tuesday in Fujairah, United Arab Emirates.
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