Oil prices give up gains as dollar comes off lows

Oil prices gave up early gains on Tuesday, as a weaker U.S. dollar came off session lows, though several analysts said that global markets might not be as oversupplied as flagged by others.

The assessment comes ahead of a November meeting of OPEC producers that could decide to cut crude production.

The proposal by the Organization of the Petroleum Exporting Countries made at the end of last month to cut or cap production has helped to lift crude prices above $50, but not much more because of market participants’ doubts over the cartel’s ability to strike and implement a concrete deal.

But several analysts have now said that a two-year global supply glut could be receding when oil inventories are taken into account. They say that stocks are not as high as usual ahead of the winter fuels season.

Brent crude fell 8 cents to $51.44 a barrel by 10:08 a.m. ET (1408 GMT), down from a session peak of $52.09.

U.S. West Texas Intermediate (WTI) crude was up 1 cent at $49.95, after earlier climbing to $50.53.

The dollar index was last up 0.06 percent after earlier dropping away from seven-month highs the previous day. A lower dollar makes fuel purchases cheaper for countries using other currencies domestically.

Analysts at Bernstein Energy said that beyond estimating production and consumption, one way to gauge the supply and demand balance is to analyse fuel inventory changes.

“Global oil inventories (industry and government) increased by 17 million barrels to 5.618 billion barrels in 3Q16. This is the smallest build since 4Q14, confirming that inventory builds are slowing as the market comes back into balance,” it said.

Citi Bank, meanwhile, pointed to an overall drop in inventories from the United States, Japan, Singapore and Europe of 35.9 million barrels.

The lower stocks, seasonal OPEC output falls irrespective of any deal and high demand for heating fuels during the Northern Hemisphere winter combine to suggest that the market will be balanced at the end of this year, analysts at Wood Mackenzie have forecast.

Traders are taking note, with money managers raising their bullish bets on U.S. crude prices to the highest level since the slump started in 2014.

JBC Energy, meanwhile, said that October tanker fixtures from the Gulf have reached a five-year high, possibly reflecting concerns that effective action by OPEC group could spur further price increases later in the fourth quarter and that additional storage buying might be best covered before November.

OPEC meets on Nov. 30 to discuss a planned production cut of about 1 million barrels per day (bpd) from its record 33.6 million bpd September output.

On the downside, traders said that oil was pressured by concerns about slowing demand, particularly in Asia. In China, the trade environment will remain weak for the remainder of 2016, the commerce ministry said on Tuesday. In India, fuel demand was down 0.7 percent year on year in September.