Investing.com--Oil prices edged higher Wednesday, extending a bounce from the prior session as US industry data pointed to a drop in oil inventories, while production by OPEC countries was seen falling.
At 08:35 ET (13:35 GMT), Brent oil futures expiring in March rose 0.2% to $77.23 a barrel, while West Texas Intermediate crude futures rose 0.4% to $74.53 a barrel.
Both contracts were close to their highest levels since mid-October, boosted by persistent signs of strength in the dominant US economy, while traders bet that cold weather in the U.S. and Europe will buoy demand.
OPEC output seen dropping December
Also helping the tone was data from Reuters which showed oil production by countries in the Organization of Petroleum Exporting Countries fell in December, with maintenance activity in the United Arab Emirates offsetting a production hike in Nigeria.
Bloomberg data showed Russia’s oil production fell below its 8.978 million barrels per day target in December.
The OPEC and its allies had pushed forward plans to begin increasing production until at least the second quarter of 2025, amid persistent weakness in oil prices.
Concerns over slowing demand in China and strong production outside the OPEC had weighed on oil prices, as had recent strength in the dollar.
Tighter sanctions to hit supply?
Traders are also studying the possibility that global supplies will be hit if the new US administration takes a harder line on the likes of Iran in terms of sanctions.
"Concerns over Iranian and Russian oil flows will also be providing some support," said analysts at ING, in a note.
"There were reports yesterday that a port operator in Shandong, China, has told ports not to accept tankers sanctioned by the US. Refiners in the region are large buyers of Iranian crude oil and so if these ports follow through, it potentially provides more obstacles to Iranian oil flows."
US inventories shrink sharply - API
Data from the American Petroleum Institute showed on Tuesday that US oil inventories shrank by more than 4 million barrels in the week to Jan. 3, substantially more than expectations for a draw of 250,000 barrels.
The reading marked a second straight week of draws for inventories, as the world’s biggest fuel consumer saw increased travel during the year-end holiday season. Cold weather in the country, stemming from a polar vortex, is also expected to spur demand for distillates, especially heating oil.
The API data usually heralds a similar reading from government inventory data, which is due later on Wednesday.
Shrinking inventories herald tighter oil supplies in the US, and also signal healthy demand in the country.
(Ambar Warrick contributed to this article.)