Oil slipped but held over $56 a barrel on Wednesday, as the market pulled back from steep gains the previous day ahead of US data expected to show a fall in fuel stocks during a cold spell, but higher crude inventories.
US crude eased 34 cents to $56.63 a barrel by 0743 GMT, after climbing $2.96 or over five percent on Tuesday - the biggest jump since September 19, 2005. London Brent crude fell 28 cents to $56.11.
Colder weather in the US northeast, the top heating oil consumer region, is seen having pushed down US distillate inventories, including heating oil, by 2.2 million barrels last week, analysts said in a Reuters poll. This would be the first time in seven weeks that distillate supplies have fallen, after an exceptionally mild winter that helped drive oil down to a 20-month low of $49.90 on January 18.
"Prices are down on technical selling," said Naohiro Niimura at Barclays Capital in Japan. "But the fundamentals are strong and market sentiment has changed - non-Opec supply has been revised down and cold weather has come to the US"
Crude stocks were expected to rise by 1.1 million barrels in the US government data due later on Wednesday, as imports rebound. The price surge was also fuelled by a rush of buying by funds ahead of a fresh Opec output cut, some analysts said.
Opec producers were set to reduce output by 500,000 barrels per day (bpd) from February 1, to add to a 1.2 million bpd cut from November. Nigerian Oil Minister Edmund Daukoru said most of the group agreed the cuts should be fully implemented before new measures are taken.
"There is a consensus to implement the cuts already announced rather than announce further cuts. I think everybody agrees we have just got to comply," he told Reuters after a meeting in the capital Abuja. Some analysts have said the cuts would be enough to prevent further rises in commercial crude inventories when demand falls in the northern hemisphere spring, though others are sceptical that producers will have the discipline to adhere to the cuts.
"We think it's a risk Opec is over-tightening the oil market," Niimura said. Tension between Iran and the West over Tehran's nuclear programme, which helped drive US oil's rally last year to a record above $78 in July, could also prop up prices.