Oil jumps after surprise fall in US crude reserves
Oil prices spiked higher Wednesday on tumbling US crude inventories indicating strong demand in the world's biggest energy-consuming nation.
New York's main futures contract, light sweet crude for delivery in September, rallied 3.23 dollars to close at 72.42 dollars.
The contract has rebounded by 5.67 dollars over the last two days.
In London, Brent North Sea crude for October delivery jumped 2.22 dollars to 74.59 dollars.
Dealers said fresh US oil inventory data lifted prices which had earlier fallen briefly below 69 dollars in New York as traders fretted over fresh losses on global stock markets.
The US Department of Energy (DoE) announced Wednesday that American inventories of crude fell a massive 8.4 million barrels last week, snapping a three-week run of gains.
That took traders completely by surprise, with the market having expected an increase of 1.5 million barrels.
It was "a very, very large draw of crude oil and considerable draw of gasoline from inventories," said Bart Melek of BMO Capital Markets.
"We are certainly seeing an improvement from total distillate demand side, signaling that the economy might be turning," he said. "I'm not sure people really expect that type of decline to continue but they certainly expect things to get better as time goes on."
The DoE also said that gasoline reserves sank 2.1 million barrels, much more than forecasts of an 800,000-barrel decline.
Distillates, which include diesel and heating fuel, fell 700,000 barrels last week whereas analysts had penciled in a gain of 500,000 barrels.
Sharply lower imports and improved demand readings make the latest US weekly data "the strongest of the year so far," said Barclays Capital in a note to clients.
The Barclays analysts see prices moving higher.
"Prices have again rallied strongly off the bottom of the 65 to 75 dollar range that we have put forward as being the most comfortable for the market this quarter," they said.
"We continue to see the current phase as being one of consolidation before a period of sustained improvement in the data creates the base for a sustained push above 75 dollars."
Antoine Halff of Newedge Group cautioned against overblown optimism following the steep drawdown on US stockpiles.
"However shocking the surprise 8.4 million barrel draw in US crude stocks reported for the week ending August 14 may appear, the news is less bullish than it seems," he said.
"The draw, the effect of which was compounded by yet another counter-seasonal dip in product stocks, did not signal a recovery in demand -- which remained well below its five-year range -- nor a supply shortfall," he said.
Halff said there was a "loss of appetite" among US Gulf Coast refiners for the heavy, sour imported oil grades "on which they used to feast, but whose discount versus domestic, lighter grades has collapsed."
Also on Wednesday, Hurricane Bill, the first of the Atlantic season, strengthened to a powerful category four storm with wind speeds near 135 miles per hour (215 kilometres per hour) but the risk of oil transport disruptions was deemed low, analysts said.