Oil up from four-month lows, inventories curb recovery

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LONDON (March 23): Oil prices climbed off four-month lows on Thursday but the recovery was cautious with investors fretting that OPEC-led supply cuts were not yet reducing record US crude inventories.

Brent crude, the international benchmark for oil, was trading at US$50.84 a barrel by 0915 GMT, up 20 US cents on the day and rebounding from Wednesday's slide to US$49.71, it lowest level since Nov 30 when OPEC announced plans to cut output.

US light crude was up 20 US cents at US$48.24.

Brent remains well below this year's high above US$58, hit shortly after Jan 1 when the deal between the Organization of the Petroleum Exporting Countries and non-OPEC states to curb supplies by 1.8 million barrels per day (bpd) came into effect.

Global stockpiles have continued rising since then. On Wednesday, data from the US Energy Information Administration showed US inventories jumped by a bigger-than-expected 5 million barrels last week to 533.1 million.

While OPEC has broadly met its commitments to reduce output, non-OPEC producers have yet to fully deliver on pledged cuts and US shale oil producers have been pumping more oil after crude prices recovered from last year's drop below US$30.

Greg McKenna, chief market strategist at futures brokerage AxiTrader, said OPEC was "underwriting the investment plans and returns of their competition in US shale oil".

He said oil prices could fall further due to US output and a lack of compliance by some producers who said they would cut.

London-based Barclays bank offered a more upbeat assessment, saying the latest oil price weakness would not last into the second quarter. The bank forecast a modest recovery.

"We see a rebound to the high US$50 and US$60 range in 2Q as inventories draw and the market readies for the peak driving and demand season," the bank wrote in a note to clients.

It said inventories held by industrialised nations would be eroded by the end of the second quarter, sliding to OPEC's target level of the five-year average.