Oil prices rose on Tuesday as supply disruptions in Canada and elsewhere that have taken some 2.5 million barrels of daily production off the market outweighed worries over brimming inventories and a looming refined products glut.
International Brent crude futures LCOc1 were trading at $44.10 per barrel at 0702 GMT, up 47 cents, or 1 percent, from their last settlement.
U.S. crude futures CLc1 were trading at $43.65 per barrel, up 21 cents, held back more than Brent by record U.S. oil stocks.
Canadian officials got their first glimpse of the oil sands town of Fort McMurray since a wildfire erupted and knocked out vast amounts of crude production there, and they said almost 90 percent of its buildings were saved.
Despite the improving conditions, producers expect shutdowns of several weeks as facilities like pipelines that were close to the fires need to be inspected, while evacuees need to leave production plants before staff can return.
Outages in Canada, which consultancy Energy Aspects said now totaled 1.6 million barrels per day (bpd), have pushed global disruptions to more than 2.5 million bpd since the beginning of the year. This has at least temporarily wiped out a glut that emerged in mid-2014 and pulled down prices by around 70 percent before a recovery started early this year.
Goldman Sachs said it expected a decline in U.S. oil production by 650,000 bpd this year, while BMI Research said that production in Asia would fall by 4.9 percent in 2016, equivalent to 331,500 bpd. Production in Latin America and Africa is also stalling.
Despite the output reductions, U.S. crude and Brent are down 2.3 percent and 2.8 percent respectively since last week’s close due to concerns about more than ample U.S. inventories, which are expected to hit records even with the disruptions in Canada.
“Despite some significant supply disruptions, most notably in Canada, ongoing bearish fundamentals precipitated a modest retracement in prices,” Societe Generale said in a weekly note to clients.
U.S. commercial crude stockpiles have likely risen for a fifth straight week, a Reuters poll showed, with crude inventories expected to have built by 500,000 barrels to a record above 543 million barrels.
Some traders said a $40-$50 per barrel price range may reflect a balanced market with plentiful stocks.
With plenty of crude available, refiners have produced large volumes of gasoline and diesel, threatening to overwhelm demand despite the coming U.S. summer driving season.
“Crude cannot go up without support from products, and that support is not there at the moment, and more refineries are coming out of turnarounds so there will be more products and tanks are getting full,” said Oystein Berentsen, managing director for crude at Strong Petroleum in Singapore.