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Oil Surges as Report of U.S. Drawdown Adds to Supply Pressures

West Texas Intermediate oil for August delivery rose 71 cents, or 1.2%, to $58.37 a barrel.

Oil Surges as Report of U.S. Drawdown Adds to Supply Pressures
A worker uses machinery to handle oil pipes at the turntable on a drilling rig (Photographer: Andrey Rudakov/Bloomberg)

(Bloomberg) -- Oil extended its gains as a report of a sharp drop in U.S. crude stockpiles added to Middle East tensions already raising the prospect of strained supplies.

Futures spiked as much as 2.5% in New York after the American Petroleum Institute was said to report an 8.13 million-barrel decline in oil inventories last week. That’s more than twice the median estimate of analysts in a Bloomberg survey. It would be the fourth straight weekly drop if confirmed by government data due on Wednesday.

The draw-down “should set the stage for a rebound," said Phil Flynn, a senior market analyst at Price Futures Group Inc. in Chicago. Prices have been weighed down this month by fears of slowing demand.

Oil Surges as Report of U.S. Drawdown Adds to Supply Pressures

West Texas Intermediate oil for August delivery rose 71 cents, or 1.2%, to $58.37 a barrel on the New York Mercantile Exchange at 4:50 p.m., after settling at $57.83. Brent crude for September settlement added 44 cents to $64.55 a barrel on the ICE Futures Europe Exchange, erasing an earlier loss.

Refined products offered a more mixed outlook on demand in the API’s report. A drop in gasoline inventories of 257,000 barrels was below analyst estimates, while the 3.69 million-barrel decline in distillate fuels was more than four times higher than expected.

WTI crude had finished the official trading session up 0.3% on Tuesday, boosted by continued conflicts in the Persian Gulf. A BP Plc ship remained parked off Saudi Arabia after Iranian officials suggested they might retaliate for the seizure of one of their own vessels last week.

Crude has slipped this month despite heightening risks of a military confrontation with Iran and a decision by the Organization of Petroleum Exporting Countries and its allies to extend output curbs. Although the U.S. and China announced a resumption of trade talks late last month, worries persist about weakening demand.

“Given the continued presence of sanctions and tensions between the U.S. and Iran, the ongoing trade war between the U.S. and China, and the potential for an economic slowdown, oil prices are likely to remain volatile in the short term," said Michael Laitkep, an analyst at Alerian, which tracks energy infrastructure companies.

Investors are also awaiting Federal Reserve Chairman Jerome Powell’s testimony before the U.S. Congress on Wednesday and Thursday. Powell will be watched closely for an indication of whether the Fed is likely to cut U.S. interest rates at its next meeting on July 31.

Other oil-market news:
  • Gasoline futures climbed 1.4% to $1.9269 a gallon.
  • Saudi Aramco, the world’s largest crude exporter, awarded $18 billion in contracts to boost capacity at two offshore fields even as OPEC promises to restrict production.
  • A joint venture between Chevron Corp., Phillips 66 and Qatar Petroleum is planning an $8 billion petrochemical plant along the U.S. Gulf Coast.

--With assistance from Sharon Cho.

To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;Grant Smith in London at gsmith52@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Catherine Traywick

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