Oil steadies on US crude inventories fall, demand hopes

• US crude stockpiles drop, products higher -EIA
• US-China Phase 1 trade deal should boost demand
• Deeper cuts by OPEC, allies support market sentiment

NEW YORK: Oil prices steadied on Wednesday after US government data showed a decline in crude inventories and on expectations for an uptick in demand next year on the back of progress in resolving the US-China trade fight.

Brent futures gained 17 cents to $66.27 a barrel by 12:23 p.m. EST (1723 GMT), while US West Texas Intermediate (WTI) rose 12 cents to $61.06 a barrel per barrel.

US crude fell by 1.1 million barrels in the week to Dec. 13 to 446.8 million barrels, compared with analysts' expectations in a Reuters poll for a 1.3 million-barrel drop, the Energy Information Administration said.

Gasoline and distillate inventories grew last week by 2.5 million barrels to 237.3 million barrels, and 1.5 million barrels to 125.1 million barrels, respectively, EIA said.

Oil pared losses after the data, which contradicted Tuesday's report of a build in US crude stockpiles from industry group American Petroleum Institute (API). API figures released showed US crude inventories swelling by 4.7 million barrels last week to 452 million barrels, sparking a post-settlement sell-off in oil futures.

"The market reaction was abruptly stronger due to the fact that we were so far away from industry estimations in the way of a net build," said Tony Headrick, an energy markets analyst at CHS Hedging.

"The upward trend from optimistic demand expectations such as from recent developments like US-China trade deal has the ability to stay in tact after these figures," Headrick said.

Prices had risen more than 1% in the previous session after the announcement last week of the so-called Phase 1 US-China trade deal, which lifted global economic prospects and improved the outlook for energy demand.

Deeper production cuts coming from the Organization of the Petroleum Exporting Countries and its allies, such as Russia, which make up a group known as OPEC+, continued to offer some support and prevented a further slide in prices.

OPEC+, which has cut production by 1.2 million barrels per day (bpd) since Jan. 1 this year, will make a further cut of 500,000 bpd from Jan. 1 to support the market.

RBC Capital Markets said prices could stagnate if trade progress did not translate into concrete economic growth.

"Economic green shoots will help sentiment", the bank wrote. "But broad macro worries, oil demand softness and pent up producer hedging may continue to serve as near term headwinds for oil prices."