[NEW YORK] Oil closed at its highest in a month following a bigger-than-expected decline in US crude stockpiles.

The Energy Information Administration reported nationwide crude inventories fell 2.57 million barrels last week, larger than the 1.49 million-barrel drop that analysts forecast in a Bloomberg survey. West Texas Intermediate futures settled 1.4 per cent higher on Wednesday, even though during the session prices pulled back briefly amid concerns over a third straight rise in supplies at the key Cushing, Oklahoma, storage hub.

"The report today was pretty bullish overall," said Matt Sallee, who helps manage US$16 billion at Tortoise in Leawood, Kansas. "I expect Cushing is going to struggle here for the next six quarters until some new infrastructure comes on."

The EIA report also showed gasoline supplies dropped by 1.55 million barrels and distillate stockpiles fell 837,000 barrels. At the same time, four-week total product demand climbed to the highest in a year.

"Even with these really high run rates at the refineries, all of the products drew as well," Mr Sallee said. "Overall, there is not a lot to be disappointed in."

West Texas Intermediate crude for October delivery added 98 US cents to settle at US$69.51 a barrel on the New York Mercantile Exchange. Total volume traded was about 37 per cent below the 100-day average.

Brent for October settlement climbed US$1.19 to end the session at US$77.14 a barrel on the London-based ICE Futures Europe exchange. Brent traded at a US$7.63 premium to New York prices, the widest gap since June, as the US benchmark crude has been weighed down by pipeline bottlenecks.

Aside from US inventory levels, traders are accounting for a drop-off in Iranian crude exports. India and China's combined purchases of Iranian crude will decline to almost 1 million barrels a day from about 1.3 million amid renewed US sanctions, ESAI Energy said in report.

Overall, "you've got a war between fears about the economy and demand, and then concerns on the supply side about Venezuela and Iran especially," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

BLOOMBERG