Oil prices fell towards $58 a barrel on Wednesday as industry data showed a larger-than-expected weekly increase in U.S. stockpiles and as Saudi Arabia reported record output in March.
The decline in prices followed a rally on Tuesday, when U.S. crude approached 2015 highs following strong jobs data and government forecasts for lower U.S. crude production growth and higher global demand for oil.
“We’re going to need to see a very big uptick in demand to offset that supply,” Ben Le Brun, analyst at OptionsXpress in Sydney, said. “There is a glut of supply in oil at the moment.”
Brent May crude LCOc1 was down 84 cents at $58.26 a barrel by 1046 GMT and U.S. May crude CLc1 dropped $1.24 to $52.74 a barrel. Both benchmarks posted strong gains in the past two sessions but are still down about 50 percent since June last year, when prices began their fall.
Data from the American Petroleum Institute (API) showed U.S. crude stocks surged by 12.2 million barrels last week against analyst expectations for an increase of 3.4 million barrels.
The weekly inventory report by the U.S. government’s Energy Information Administration (EIA) will be released at 1430 GMT on Wednesday.
Adding to that supply, Saudi oil minister Ali al-Naimi said late on Tuesday that Saudi output would likely remain around 10 million barrels per day (bpd) after posting a record high of 10.3 million bpd in March.
Naimi also said the kingdom stood ready to “improve” prices but only if producers outside the Organization of the Petroleum Exporting Countries (OPEC) joined the effort.
Iraq and Libya also increased their output for March, further adding to OPEC production which came to about 31.5 million bpd in March, according to analyst Olivier Jakob at Swiss-based Petromatrix.
“With such a level of OPEC production it will be difficult to escape large stock-builds throughout the year,” he said in a note on Wednesday.
Iranian oil officials are in Beijing this week to discuss oil sales and Chinese investments in Iran, just days after Tehran and world powers reached a framework nuclear deal.
Still, any significant increase in Iranian oil exports is unlikely until 2016, analysts have said.
In company news, Royal Dutch Shell (RDSa.L) said on Wednesday it had agreed to buy BG Group (BG.L) for 47 billion pounds ($70 billion) in the first oil super-merger in a decade.