Oil up on surprise US inventory drawdown

Oil up on surprise US inventory drawdown

Singapore: US oil climbed above $87.20 a barrel on Wednesday, led by strong performances in the global stock markets and a surprise draw down in crude inventories in the world’s top oil consumer.

US crude for March rose 33 cents to $87.27 a barrel at 8:30am, while ICE Brent was up 21 cents to $100.13 a barrel, with the spread between the two grades hitting a new record high at $12.86 a barrel.

Shares in Asian developed markets rose as investors bet that China’s latest interest rate rise would not derail hopes of a sustained economic recovery.

China raised interest rates by 25 basis points late on Tuesday, its second increase in just over six weeks.

The timing was unexpected, coming on the final day of the Lunar New Year holiday, but investors have long expected more monetary tightening as Beijing struggles to rein in price pressures.

Japan’s Nikkei average rose for a fourth day in a row on Wednesday and hit a fresh nine-month high. Australia’s benchmark index was also up 0.3%.

The Dow Jones industrial average notched a seventh straight day of gains on Tuesday, rising 0.6%, as surprisingly strong sales by McDonald’s boosted optimism about consumer spending.

“The crude oil market is now held up by the bullish stock market, rather than geopolitical reasons," said Benson Wang of Commodity Broking Services in Sydney.

“The Egyptian unrest had pushed the market up in the last 15 days, but I think people’s reaction towards that is now calmer, and the effects on oil prices are reducing."

“But going forward, upside on crude oil prices is limited. If I have to make a call, I think we have seen crude oil prices at their highest for this year."

Egyptians staged one of their biggest protests yet on Tuesday demanding President Hosni Mubarak step down now, their wrath undiminished by the vice president’s announcement of a plan to transfer power.

While the government refuses to budge on the demonstrators’ main demands, Vice President Omar Suleiman promised there would be no reprisals against the protesters for their three-week-old campaign to eject Mubarak, 82, after 30 years in office.

Adding to the turmoil was a strike staged by about 3,000 workers in companies owned by the Canal authorities and based in Ismailia and Suez over pay and conditions.

But the strikes will not affect Suez Canal operations and movement of ships, a senior official said.

In Colombia, a 48,000 barrels-per-day capacity Transandino oil pipeline has been halted by two suspected rebel bomb attacks, but exports have not been affected, state-run Ecopetrol said on Tuesday.

US crude stocks unexpectedly fell 558,000 barrels last week on sharply lower imports, the American Petroleum Institute (API) said on Tuesday. This contrasted expectations from analysts polled by Reuters who had expected a 2.4 million-barrel rise in crude stocks.

Crude imports fell 1.1 million barrels a day (bpd) to 8.65 million bpd, while crude stocks at Cushing, Oklahoma, the delivery point for US oil futures, fell by 927,000 barrels, API said.

The US Energy Information Administration (EIA) said more supply will be needed as the world will consume about 140,000 bpd more in oil than it had forecast last month, with demand now expected to average a record 88.16 million barrels per day this year.

But it added that Saudi Arabia was pumping more crude than previously thought, about 100,000 barrels per day extra during both November and December.