Oil prices extended gains in Asian trade on Thursday, after a larger than expected draw in U.S. crude and gasoline stocks strengthened the outlook for oil demand.
But gains were capped by a stronger dollar and despite the drop in oil stocks some commentators warn of a global supply glut, with OPEC members producing 3 million barrels per day more than demand in the second quarter.
U.S. crude stockpiles fell by 4.2 million barrels in the week to July 24, more than twenty times analysts’ expectations of a decrease of 184,000 barrels, Energy Information Administration (EIA) data showed.
Gasoline stocks dropped by 363,000 barrels against analysts’ forecasts of a 512,000-barrel gain with U.S. gasoline demand up 6.2 percent from a year ago.
The large draw down in stocks could be short-lived, said Tony Nunan, oil risk manager at Tokyo’s Mitsubishi Corporation.
“The EIA data shows demand is being stimulated by lower oil prices. It could be a flash in the pan. We have passed peak summer demand. It could be temporary,” he said.
The drawdown is “providing temporary support that should wane – a last hurrah for summer,” Nunan added.
Brent crude for September delivery rose 36 cents to $53.74 a barrel as of 0240 GMT, after settling 8 cents higher in the previous session.
U.S. crude for September delivery climbed 17 cents to $48.96 a barrel, after ending the previous session up 81 cents, or 1.7 percent.
Nunan estimated global oversupply at between 1.5-3 million barrels a day.
“Prices this year and next are going to be weak. It could go to $40 a barrel which has been a major support line because if it goes below that a lot of upstream developments will be underwater and below long-term breakeven prices,” Nunan said.
“Long-term $60-70 a barrel is a more sustainable price,” he added.
“The outlook still remains cautious for crude oil prices, especially Brent oil. Prices may not get any relief in the short term as players are expected to continue the fight for market share at the expense of price,” ANZ said in a note on Thursday.
A stronger dollar, buoyed by the outcome of a two day U.S. Federal Reserve meeting that saw the economy and jobs continuing to strengthen, was also weighing on prices.
The dollar index rose 0.26 percent to 97.233 against a basket of currencies.
A strong U.S. currency makes dollar denominated commodities more expensive for holders of other currencies.
Investors are eyeing the release of key European and U.S. consumer confidence, GDP and jobs data later on Thursday.