U.S. oil is back with a vengeance to start off 2017, but oil prices were rising even though U.S. crude stockpiles increased for the first time since OPEC implemented production cuts with the intent to rebalance the global oil market.
U.S. benchmark West Texas Intermediate for February delivery was up 0.8%, trading at around $51.63 a barrel, while Brent crude futures were climbing by nearly 0.9% to $54.60 a barrel at 10:45 a.m. ET.
The U.S. Energy Information Administration reported a larger-than-expected build in U.S. crude inventories, which jumped up by 4.1 million barrels for the week ending Jan. 6. The build pushed stockpiles up to 483.1 million barrels, meaning domestic inventories are at the upper limit of the average range for this time of year. Analysts had been anticipating a build of approximately 1.2 million barrels.
The EIA data is greater than the American Petroleum Institute's (API) weekly report, which revealed a 1.5-million-barrel-build, sending oil prices lower late Tuesday.
Crude oil imports increased to 9.1 million barrels per day last week. Over the four weeks, imports averaged 8.2 million barrels per day, which represents a 6.3% jump from the same period last year.
Refinery inputs rose by 418,000 barrels per day to 17.1 million barrels per day last week. Refineries operated at 93.6% of their operable capacity last week, the EIA reported.
Meanwhile, motor gasoline inventories increased by 5 million barrels last week. Distillate supplies also increased by 8.4 million barrels, and are above the upper limit of the average range for this time of year.
Oil prices had been rising prior to the EIA report on news that OPEC's leading producer, Saudi Arabia, told some of its Asian customers that it will reduce their crude supply slightly in February, according to Reuters. While this is a positive sign that OPEC members are adhering to the cuts, there is still concern that other members will not comply.
Traders will continue to monitor how U.S. companies are responding to OPEC's production cuts with the Baker Hughes (BHI) rig count on Friday, which is seen as an important barometer for drilling activity across the U.S. and North America. Last week, U.S. oil producers added 4 rigs, while gas producers brought 3 rigs online, bringing the overall count up to 665. West Texas' lucrative Permian Basin saw the biggest increase in rigs, climbing by three, which brought the total up to 267 rigs -- the most of all the major domestic basins.
"We believe last month's surprising OPEC policy change has effectively established a $50 a barrel floor on oil prices, providing operators the confidence to increase upstream spending, particularly onshore U.S.," Barclays wrote in a research note on Monday.