Oil edges higher on reports of decreasing stockpiles, but glut is here to stay

On Wednesday oil prices edged higher on reports of declining stockpiles and higher refinery activity. However, analysts warn that the market would be pressured for the rest of 2015 and further in 2016.

On Tuesday industry group American Petroleum Institute (API) reported that last week U.S. crude stockpiles dropped by 482,000 barrels due partly to increased refinery runs.

This helped crude oil futures add 1.36% to trade at $41.22 a barrel. The rise followed an over $1 fall the previous session.

Brent crude was last trading at $44.24 a barrel, up 1.55%.

Later in the day, investors will be waiting for official inventory data from the U.S. government's Energy Information Administration (EIA).

In spite of the gains on Wednesday, most experts expect prices to remain under pressure for the rest of the year and into 2016 as production continues to outpace demand. The Center for Strategic and International Studies said in its 2016 outlook on Wednesday that the oversupply and surpluses are likely to enter 2016, exerting lingering downward pressure on prices.

Consultancy Energy Aspects said in a note this week that talk of $20 oil is back.

The bearish sentiment lingers, as every day between 0.7-2.5 million barrels of oil per day are being produced in excess of demand, leading to an oversupply that is testing the logistics of oil markets.

Jefferies bank said they expect that inventories will build counter-seasonally - stocks usually fall in winter - in the fourth quarter of this year, and that the market will remain oversupplied through the first quarter of 2016.

As Reuters reports, onshore inventories across the world are on the verge of being full, a condition known as tank-top. Offshore tanker storage, meanwhile, demands prices on the far end of the curve to be higher than prompt deliveries in order to warrant storage.

Jefferies said that the market is looking for storage solutions, but with January 2017 prices currently trading around $6 a barrel above those for January 2016, the spread is too low to make floating storage appealing as freight costs still have to be taken into consideration.