Oil rises 2% with Brent futures hitting a two-week high

New York — Oil prices rose 2% on Wednesday, with Brent crude futures hitting a two-week high, after data showed a larger-than-expected draw in US crude inventories due to strong refiner demand and as US sanctions on Iran signaled tightening supplies.

Brent crude futures rose $1.48, or 2%, to $74.11 a barrel, by 2.57pm GMT. The global benchmark reached $74.48 during the session, the highest since August 8. US West Texas Intermediate (WTI) crude futures rose $1.49 to $67.33 a barrel, a 2.3% gain.

US crude inventories fell 5.8-million barrels last week, the Energy Information Administration (EIA) said, more than the 1.5-million-barrel draw forecast by analysts polled by Reuters.

Refinery crude runs slipped 89,000 barrels per day (bpd) from the previous week’s record high to 17.9-million bpd, EIA data showed. Refinery utilisation rates remained unchanged last week at 98.1% of total capacity, the highest rates since 1999.

“The market is staying strong because US refiners are showing no signs of going into maintenance or slowing down,” said Phil Flynn, analyst at Price Futures Group in Chicago. Oil also found support from a weaker dollar, which has slipped this week in response to US President Donald Trump’s comment that he was “not thrilled” by the Federal Reserve’s interest rate increases.

A weaker dollar makes oil less expensive for buyers using other currencies.

The prospect of a drop in oil exports from Iran, the third-largest producer in oil cartel Opec, in response to new US sanctions was also supporting the market. European oil companies have started to cut back on Iranian purchases, although Chinese buyers are shifting their cargoes to Iranian-owned vessels to keep supplies flowing.

“The Iran issue continues to occupy traders’ minds,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader. Ratcheting up tensions, Iran warned on Wednesday that it would hit US and Israeli targets if it were attacked by the US after Trump’s security adviser said Washington would exert maximum pressure on Tehran going beyond economic sanctions.

Opec has started to boost supplies following a deal with Russia and other allies in June, although producers have been cautious so far. Saudi Arabia told Opec it cut supply in July, rather than increasing output as expected.

Signs of tighter supply countered concern about slowing oil demand stemming partly from the trade dispute between the US and China, the world’s two largest economies. US and Chinese officials were set to resume talks on Wednesday, but Trump said he expected there will be no real progress.

Reuters