Oil prices rose on Thursday after US data showed a surprise decline in inventories, suggesting that a global glut may be ending after moves by OPEC to cut production.
Benchmark Brent crude oil was up 70 cents a barrel at $56.54 by 10.25 GMT, recovering from a drop of 82 cents on Wednesday. US light crude was 70 cents higher at $54.29 a barrel.
Both benchmarks are near the top of the relatively narrow $4 ranges that have contained the trade price so far this year, reflecting a period of low volatility since the Organization of the Petroleum Exporting Countries and other exporters agreed to cut output.
OPEC and producers including Russia aim to reduce production by around 1.8 million barrels per day (bpd) in an attempt to drain an oversupply that has kept prices depressed for more than two years.
So far OPEC appears to be sticking to its deal but other producers, notably US shale companies, have increased output, helping swell stocks in the United States, the world's biggest oil consumer.
Industry data on Wednesday showed US crude inventories fell by 884,000 barrels in the week to February 17 to 512.7 million, compared with analyst expectations for an increase of 3.5 million barrels. [API/S]
US gasoline and distillate fuel stocks also fell, the American Petroleum Institute (API) said.
Tamas Varga, analyst at London brokerage PVM Oil Associates, said oil prices could rally further if the U.S. government's Energy Information Administration (EIA) also reports a fall in inventories when its data is published at 11 am EST (16.00 GMT) on Thursday.
"Confirmation of the bullish set of inventory data from the EIA this afternoon will send prices to the upper end of the current trading range," Varga said. "If, however, the figures disappoint those who have gone long overnight and this morning will likely run for the exit."
Tony Nunan, risk manager at Mitsubishi Corp, said the market needed to see that stocks outside the United States were also falling for prices to break out of their trading ranges.
"It's a battle between how quick OPEC can cut without shale catching up," Nunan said, referring to US drilling in shale formations that has shown an upsurge this year; "what OPEC really has to do is get the inventories down."
Additional reporting by Aaron Sheldrick in Tokyo; Editing by Dale Hudson and Susan Thomas; Reuters