Oil prices rose early on Tuesday as some analysts said markets might not be quite as oversupplied as suggested by many, with global inventories rising less than expected ahead of the high-demand winter heating season in the northern hemisphere.
A drop in the dollar away from seven-month highs the previous day also supported crude, as a lower greenback makes fuel purchases cheaper for countries using other currencies domestically.
Brent crude was at $51.91 per barrel at 0655 GMT, up 39 cents, or 0.76 percent from the previous close.
U.S. West Texas Intermediate (WTI) crude was up 40 cents, or 0.8 percent, at $50.34 a barrel.
Traders said prices were receiving support from the notion that oil markets, which have been dogged by oversupply for two years, may be closer to balance than previously anticipated.
Beyond estimating production and consumption, one way to gauge the supply and demand balance is to analyze fuel inventory changes.
“Global oil inventories (industry and government) increased by 17 million barrels to 5.618 billion barrels in 3Q16. This is the smallest build since 4Q14, confirming that inventory builds are slowing as the market comes back into balance,” Bernstein Energy said in a note on Tuesday.
Bernstein said that recent inventory declines “suggest that oil markets may be closer to re-balancing than some expect,” but added that going forward “much depends on how much OPEC is prepared to cut at the upcoming meetings in Vienna at the end of November”.
Citi bank said in a note that “the much cited oil market oversupply has, for the last 4 weeks, at least, been notably belied by the data,” pointing to an overall drop in inventories from United States, Japan, Singapore and Europe of 35.9 million barrels.
Traders are taking note, with money managers raising their bullish bets on U.S. crude prices to the highest level since the slump started in 2014.
The Organization of the Petroleum Exporting Countries (OPEC) will meet on Nov. 30 to discuss a planned output cut of around 1 million barrels per day away from its record 33.6 million bpd production in September.
The cartel hopes that major non-OPEC producer Russia will cooperate.
Despite the potential cuts, traders said oil was pressured by concerns over a slowdown in demand, especially in Asia, the main pillar of demand growth in recent years.
In China, the trade environment will remain weak for the remainder of 2016, the commerce ministry said on Tuesday. And, in India, fuel demand fell 0.7 percent in September compared with the same month last year, data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry showed.