Oil prices strengthened on May 17 ahead of U.S. crude inventory data that could give investors a clue as to whether an OPEC-led output cut is making progress in reducing the persistent global supply overhang.
Brent crude was up 33 cents at $51.98 per barrel (bbl) by 6 a.m. CT (11 GMT). West Texas Intermediate (WTI) light crude rose 18 cents to $48.84/bbl.
Both benchmark prices started the day in negative territory after industry data from the American Petroleum Institute estimated that U.S. crude stocks had risen by 882 Mbbl in the week ending May 12 to 523 MMbbl.
That defied expectations of analysts who estimated a draw in the stockpiles of 2.4 MMbbl, according to a Reuters survey. Data from the Energy Information Administration (EIA), seen as more complete, is due later on May 17.
Brent reached $52.63/bbl and WTI rose as high as $49.66/bbl on May 15 after Saudi Arabia and Russia agreed on the need to extend output curbs by members of OPEC and other producers.
The supply cuts of 1.8 MMbbl/d were initially agreed to run during the first half of 2017. Riyadh and Moscow say they should be extended until March. An extension is due to be discussed at an OPEC meeting on May 25.
"The oil rally has paused and whether it can resume depends on today's EIA inventory report," said Ole Hansen, head of commodity strategy at Saxo Bank.
"Having seen an initial short-covering rally, we now need OPEC and non-OPEC producers agreeing on the nine-month extension for the market to begin build up new long positions," Saxo's Hansen said.
OPEC nations such as Kuwait, Iraq, Oman and Venezuela have said they supported an extension to the supply cuts, signaling that the meeting next week will go smoothly. Some analysts have said a deeper cut could even be on the table.
The extension would come as global stocks remain stubbornly high, in part because U.S. production has climbed 10% since mid-2016 to 9.3 MMbbl/d, not far off that of top producers Russia and Saudi Arabia.
Jefferies bank said it was lowering its oil price forecasts due to the strong rise in U.S. production, cutting its Brent price estimate for the second half of 2017 to $59/bbl from $61/bbl previously.
North Sea oil output, generally seen in terminal decline, is expected to jump by a net 400 Mbbl/d in the next two years with new projects and greater efficiencies.
Trade sources and Reuters shipping data indicated a rising number of tankers storing oil offshore China because facilities on land are full.