Oil up but gains capped on glut concerns

Singapore - Oil prices have edged higher on Thursday but gains were capped amid fresh worries about the global supply glut as US crude reserves soared to a record high, analysts said.

US benchmark West Texas Intermediate (WTI) for March delivery rose seven cents to $44.52 while Brent crude for March gained 18 cents to $48.65 in mid-morning trade.

WTI dropped $1.78 in New York while Brent fell $1.13 in London after official data released Wednesday showed US crude stockpiles surged by 8.9 million barrels to 406.7 million in the week to January 23.

That was the highest level since the US government began keeping weekly records in 1982.

The stockpiles data "added to the pressure on benchmark prices", said Sanjeev Gupta, head of the Asia-Pacific oil and gas practice at consultancy firm EY.

Daniel Ang, investment analyst at Phillip Futures in Singapore, said the stockpile surge came as "no surprise" as refinery utilisation rates in the world's top crude consumer have been low.

However, "what is really shocking is that US production still continues to increase despite low crude prices", Ang said.

"Without a drop in US crude production, it is going to be an uphill battle for oil bulls," he added.

Oil has lost more than half its value since June last year when the commodity was sitting at more than $100 a barrel due to a supply glut, boosted largely by robust US shale oil production, and weak global demand.

The problem was exacerbated in November after the Opec oil cartel insisted that it would maintain output levels despite plunging prices. The 12-nation group pumps about 30% of global crude.

Analysts said oil was also facing downward pressure after a fresh US Federal Reserve policy statement released on Wednesday suggested no deviation from the central bank's plan to begin hiking interest rates around the middle of the year.

The Fed has kept its key federal funds rate pegged between zero and 0.25% since late 2008 to support the US economy's recovery from the deep 2008-2009 recession.

The Fed's "hawkish sentiment" caused the US dollar to rise, making dollar-priced crude more expensive to buyers outside the US and denting demand, Ang said.