NEW YORK (Reuters) – Oil prices rose 2 percent on Wednesday after top exporter Saudi Arabia said it would cut crude exports and deliver an even deeper cut to its production, but swelling U.S. crude inventories led the market to pare gains.

U.S. crude oil inventories rose last week to the highest since November 2017 as refiners cut runs to the lowest since October 2017, the Energy Information Administration said. [EIA/S]

The increase came despite falling net imports, which dropped to the lowest on record, as domestic crude production remained at peak levels for the fifth straight week.

Brent crude futures rose $1.23 to $63.65 a barrel by 11:26 a.m. EST (1726 GMT). The global benchmark earlier touched a session high of $63.98, but pulled back after the data was released.

U.S. crude futures were up $1.07 to $54.17 a barrel.

“This report is bearish,” said Phil Flynn an oil analyst at Price Futures Group in Chicago. “The market is holding up because of the outside markets, the hope for a trade deal, and a strong Dow,” he said.

Still the somewhat bearish report did little to shake the market’s overwhelmingly bullish sentiment, said Tom Saal, senior vice president at INTL FCStone in Miami.

“It’s a little bit on the bearish side,” Saal said. “But the news about Saudi Arabia is pretty significant, so the market is reacting to that more so than anything else right now.”

On Tuesday, Saudi Energy minister Khalid al-Falih told the Financial Times the kingdom’s production will fall below 10 million barrels per day in March, more than half a million below the target it agreed to in a deal between OPEC and its allies, aimed at curbing a global supply overhang.

The Organization of the Petroleum Exporting Countries said on Tuesday it had cut output by almost 800,000 bpd in January to 30.81 million bpd. Saudi Arabia is responsible for most of that reduction.

“The feel-good factor is back in play but oil bulls are by no means out of the woods yet,” PVM Oil Associates Stephen Brennock said.

“It is a well-known fact that the world economy is losing momentum amid a plethora of downside risks including lingering U.S.-China trade tensions and geopolitical uncertainty.”

U.S. restrictions on Venezuela’s energy sector should remove some 330,000 bpd in supply this year, according to Goldman Sachs.

The oil price has risen by 20 percent so far this year, yet most of that increase came in early January, before the imposition of U.S. sanctions on Venezuela’s energy sector.

The global oil market remains well supplied, the International Energy Agency said in its monthly market report on Wednesday, and output should still outstrip demand this year. [IEA/M]

“Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018,” the IEA said.

“In quantity terms, in 2019, the U.S. alone will grow its crude oil production by more than Venezuela’s current output. In quality terms, it is more complicated. Quality matters.”

U.S. crude output is expected to grow by 1.45 million bpd this year and by another 790,000 bpd next year to hit 13 million bpd in 2020, according to the EIA [EIA/M]

The growth, led by U.S. shale oil output, has built up global inventories of crude and refined products. Refining margins for gasoline have collapsed. [PRO/E] [PRO/U]