LONDON: Oil prices held steady after surrendering early gains on Thursday, as an unexpectedly large rise in US inventory levels dented some of the recent optimism that the oversupply plaguing the market could soon vanish.
US crude stocks rose by 3.1 million barrels to 461 million last week as refineries cut output and idled capacity. Analysts had expected a rise of 2.2 million barrels.
The oil price is set for a 7 percent gain this week, its largest weekly increase since late August, after oil industry executives warned that this year's fall below $50 would force higher-cost producers to reduce output.
"Those expectations drove prices upwards, so that's being reassessed and it's possible we'll see prices dropping below $50 again," Commerzbank analyst Carsten Fritsch said.
Brent crude oil futures rose 6 cents on the day to $51.39 a barrel by 1058 GMT, down from an intraday high of $52.03 and down from Wednesday's one-month high at $53.15. US crude futures rose 11 cents to $47.92 a barrel.
Underpinning the crude complex was a drop in the dollar ahead of the release of the minutes of the Federal Reserve's most recent policy meeting, which may offer some insight into the outlook for interest rates.
A weaker dollar tends to make it cheaper for non-US investors to buy dollar-denominated assets. "The release of the (Fed) minutes will be the main focus for today," Fritsch said.
With little data out this week, apart from industry and government inventory numbers in the United States, and China on holiday for the first three days, the market has focused on longer-term demand trends that have supported prices.
A US Energy Information Administration report on Tuesday predicted global oil demand for 2016 would rise by the fastest rate in six years, suggesting the crude surplus that has pushed prices down about 50 percent since June last year is easing faster than expected.
"That is where we have seen a little bit of a pick-up over the last couple of sessions, but ever so slightly back to reality over the last 10 or 12 hours," said Ben le Brun, market analyst at OptionsXpress in Sydney.
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