Oil edged lower to around $37 a barrel on Thursday, nearing an 11-year low reached this week, as oversupply pressured the global market despite signs of tightening in the United States.
U.S. Crude has gained support from falling inventories, reduced drilling and the lifting of a ban on most U.S. Crude exports, which has pushed U.S. Crude to a premium to global benchmark Brent for the first time in about a year.
Brent was down 31 cents at $37.05 a barrel as of 1136 GMT. It fell to $35.98, an 11-year low, on Tuesday. U.S. Crude was unchanged at $37.50 after gaining almost 8% this week.
“For now, there is still an ample supply of crude and a huge amount in storage,” said Olivier Jakob, oil analyst at Petromatrix in Switzerland.
Crude gained support from the latest snapshot of U.S. Supplies on Wednesday. Crude inventories, which were expected to rise, fell 5.88 million barrels, the Energy Information Administration said.
Baker Hughes reported that U.S. Oil drillers cut rigs for a fifth week in the last six, a sign that low prices are curbing activity and could slow output.
Even after this week’s rally, Brent has more than halved from over $100 a barrel 18 months ago pressured by a supply glut that according to OPEC figures is currently over 2 million barrels per day.
Next year, the glut is expected to be smaller as world demand rises and the price collapse leads to lower output from some countries outside OPEC, but there is no sign yet that OPEC itself is prepared to lower its supply – which is likely to rise when sanctions on Iran are lifted.
“While the crude rebalancing should start next year, the pace of inventory drawdown will depend on OPEC output,” said analysts at Energy Aspects in a report.
“Despite Iran’s return, we believe the cash-strapped OPEC countries will struggle to maintain output, resulting in stronger prices and timespreads in the second half of 2016.”