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Oil market rebounds to 2016 highs as US data offers bullish surprise

The oil market staged a dramatic rebound in late trade to return to 2016 highs after unexpectedly low US supply data trumped market concerns over the abrupt end to strike action in Kuwait.

The anticipated increase in Kuwaiti supply following the sooner than expected end to a three-day oil worker strike late on Tuesday pushed the benchmark Brent crude price down more than 2.5pc to lows of $43 a barrel by Wednesday morning.

But a surprising weekly US oil stock report triggered a late 4.5pc surge to just over $45 by 18:00 BST.

The latest figures from the US Energy Information Administration were widely expected to deliver further bearish momentum to the market. But oil storage levels grew by less than expected and in some parts of the US were lower compared to the previous week.

Market volatility has increased after the world’s major oil producers failed to agree a deal to freeze production over the weekend. Oil prices slumped to nearly $40 a barrel on Monday before the short-lived Kuwait strike caused prices first to rise and then pare gains as it came to an end.

“With Kuwaiti production moving towards pre-strike levels the focus can return to the other drivers,” said Saxo Bank oil analyst Ole Hansen.

Mr Hansen warned that the collapse in talks between the Organization of Petroleum Exporting Countries (Opec) and other major producers in Doha last weekend could leave the door open for larger than expected output increases in the coming months, which would drive prices lower.

“There is a risk that the power structure in Saudi Arabia has changed thereby increasing the political impact on oil prices. If Saudi Arabia turns its oil weapon on Iran and begins to increase production, as threatened, a revisit to the low $30s cannot be ruled out,” he said.

Iran is also expected to speed up exports following the lifting of international sanctions in January, while an improving political situation in Libya may put yet more crude into the market.

“A stabilising Libya raises the prospects of barrels returning from a country which used to produce 1.6m barrels a day and now only around 300,000 barrels a day,” Mr Hansen said.

Saxo Bank believes that Brent crude will continue to trade within the $35 to $45 a barrel range into the summer, before prices slowly recover to reach levels near $50 a barrel by the year’s end.