The latest American Petroleum Institute (API) weekly inventory data recorded a large build of 4.5mn barrels compared with expectations of a draw of around 0.5mn for the week and following the 1.0mn draw reported last week.
The big build in stocks will provide an important test for more bullish sentiment, although potential downward pressure on prices should be limited by the product draws.
There was a substantial draw in gasoline stocks of 2.1mn, significantly bigger than expected, while distillates recorded a draw of 0.8mn barrels on the week. The draw in gasoline inventories will ease concerns that bloated gasoline stocks will undermine crude demand for refining, although there will still be concerns surrounding increased Chinese exports.
Oil prices continued to weaken early in the European session on Tuesday, but rallied to secure a net gain for the day with WTI pushing to a high above $48.00 p/b.
Early in the US session, there were reports from OPEC sources that Iran would attend the informal talks between oil producers due to be held in Algeria in September. Although there was still a high degree of scepticism surrounding any production freeze, the reports still pushed WTI sharply higher.
There were still underlying concerns surrounding oversupply in the market, especially with the potential for increased Iraqi crude exports. The latest Goldman Sachs forecast expected a price of $45-50 p/b until summer 2017.
From just below $48.00 ahead of the data, WTI prices dipped lower below $47.70 in an immediate reaction before stabilising close to this level.
The EIA data on Wednesday will be watched very closely following a 2.5mn barrel draw reported last week and an expected small draw this week. The latest US production figures will also be watched closely given the sustained increase in drilling rigs over the past 8 weeks.