Investing.com - Oil prices edged higher on Thursday, building on Wednesday’s big gain, in what is expected to be thin volume ahead of the Christmas break.
Trading volumes are expected to remain light as many traders already closed books before the end of the year, reducing liquidity in the market and increasing volatility. U.S. markets close early Thursday, Christmas Eve, and are shut Friday for Christmas Day.
Crude oil for delivery in February on the New York Mercantile Exchange inched up 28 cents, or 0.73%, to trade at $37.78 a barrel during European morning hours.
A day earlier, prices hit $37.95, the most since December 9, before ending at $37.50, up $1.36, or 3.76%, after weekly supply data showed that U.S. oil stockpiles fell 5.9 million barrels last week. Market analysts' expected a crude-stock gain of 1.1 million barrels.
Also Wednesday, industry research group Baker Hughes (N:BHI) said that the number of rigs drilling for oil in the U.S. decreased by three to 538 last week, the fifth decline over the past six weeks.
Nymex oil futures are up nearly 9% so far this week. Prices are still down approximately 31% so far this year amid worries over ample domestic supplies.
Elsewhere, on the ICE Futures Exchange in London, Brent oil for February delivery tacked on 18 cents, or 0.5%, to trade at $37.55 a barrel. On Wednesday, prices rallied $1.25, or 3.46%, after falling to $35.98 earlier this week, a level not seen since July 2004.
Brent prices are on track to post an annual decline of 33% in 2015, as oversupply concerns dominated market sentiment for most of the year.
Oil futures have fallen sharply this month after the Organization of the Petroleum Exporting Countries failed to agree on output targets to reduce a glut of oversupply on global energy markets.
Global crude production is outpacing demand following a boom in U.S. shale oil and after a decision by OPEC last year not to cut production in order to defend market share.
Meanwhile, Brent's discount to the WTI crude contract stood at 23 cents, compared to a discount of 14 cents by close of trade on Wednesday.
U.S. crude has been firmer relative to Brent recently, on signs that the U.S. oil market is likely to grow tighter following Congress' decision to lift a 40-year old ban on domestic oil exports, while a global glut gets worse in 2016 due to soaring production in Saudi Arabia and Russia.
Oversupply issue will be exacerbated further once Iran returns to the global oil market early next year after western-imposed sanctions are lifted. Analysts say the country could quickly ramp up production by around 500,000 barrels, adding to the glut of oil that has sent prices tumbling.
Market experts predict Brent's premium over U.S. crude to flip into a discount in the coming weeks. The gap between the two benchmarks is down over 95% since its 2015 peak reached earlier in the year.