By Henning Gloystein
SINGAPORE (Reuters) - Oil prices rose on Wednesday after falling the previous session on expectations U.S. output will decline further as some producers are under increasing financial distress and as early inventory data showed a less-than-expected increase.
U.S. crude futures (CLc1) were trading at $36.86 per barrel at 0247 GMT, up 52 cents from their last settlement.
Brent (LCOc1) was up 39 cents at $39.13 a barrel.
Oil rose after prices dropped about 2 percent the previous session.
Inventory data from the American Petroleum Institute showed on Tuesday that U.S. crude stockpiles rose 1.5 million barrels last week, less than half of what was expected by an analyst poll, lending markets some support.
The U.S. government's Energy Information Administration (EIA) will issue official production and inventory figures later on Wednesday. That data is expected to show crude inventories rose to a record for a fifth straight week.
"For today, we may see some strength for prices coming from possible U.S. production declines," said Singapore-based Phillip Futures in a note today, although it does not expect U.S. and Brent prices to rise higher than $39.83 and $40.17 per barrel, respectively.
U.S. shale producer Linn Energy (O:LINE) said on Tuesday that bankruptcy may be unavoidable as the company missed interest payments amid a slump in oil prices of as much as 70 percent since mid-2014.
Other companies, also fighting for survival, are seeking risky and costly borrowing from private equity firms.
Despite Wednesday's price rises, oil markets remain dogged by a global glut which sees over 1 million barrels of crude pumped every day in excess of demand.
And analysts warned that a recent bull-run which saw crude markets jump over 40 percent from multi-year lows earlier this year was overblown and largely driven by speculative traders buying crude from producers who were selling it as a financial hedge.
"Producers are not buying the rumour-mill... In fact, it is just the opposite: speculators are buying what producers are selling... Speculators are record long Brent (on ICE) while producers are record short... Who do you think is going to win out?" said the U.S.-based The Schork Report in a note to clients.
Fundamentally, there are few changes to the supply balance.
While Saudi Arabia and Russia have proposed to freeze their output at January volumes, near record levels of over 10 million barrels per day (bpd) each, Iran has said it would only participate once its production hits 4 million bpd from a current 3 million bpd.
"Any such deal (to freeze output) would still not be a game changer. It would really just maintain the excess supply that is now in place," Thomas Pugh of Capital Economics said in a note.