Oil prices rise on deep weekly draw in US crude inventories

Oil prices gained about one per cent on Wednesday after a larger-than-expected decline in U.S. crude stocks, but gains were capped by concerns about rising global inventories in thin trading ahead of the U.S. Independence Day holiday.

Brent crude futures rose $1.10, or 1.3 per cent, to settle at $87.34 a barrel. U.S. West Texas Intermediate (WTI) crude futures gained $1.07, or 1.3 per cent, to $83.88.

The U.S. Energy Information Administration (EIA) reported a 12.2 million draw in the country's crude oil barrels in storage last week, which was larger than analysts' expectations in a Reuters poll for a 680,000-barrel draw.[EIA/S]

"Strong exports, a slight drop in imports, and a rebound in refinery runs colluded to draw crude inventories by a whopping 12 million barrels," said Kpler oil analyst Matt Smith.

But the market's reaction was muted partly due to lower trading volumes ahead of Independence Day, analysts noted.

Potential supply disruptions to Hurricane Beryl have also kept prices elevated, although concerns eased after the U.S. National Hurricane Center said the storm was expected to weaken by the time it entered the Gulf of Mexico this week. The rain and wind impacts could still disrupt Mexico's offshore oil production as well as its export infrastructure and tighten supply, said Andrew Lipow, president of Lipow Oil Associates. Mexico is a major crude oil exporter.

OPEC output rose for a second consecutive month in June, a Reuters survey found on Tuesday, which weighed on oil prices. Higher supply from Nigeria and Iran offset the impact of voluntary supply cuts by other members and the wider OPEC alliance.

"OPEC was reported to have increased production in June despite pledges to keep quotas in check through the third quarter, and lingering concerns over a tepid recovery in China sent a bearish signal," Panmure Gordon's Kelty said.

Also dampening prices were surveys that showed that China's services activity expanded at the slowest pace in eight months and confidence hit a four-year low in June. Overall business growth across the eurozone also slowed sharply last month. China is the largest importer of crude barrels, and a slowdown in the country's economic activity can damage oil demand.

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