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Oil rallies on expectation inventories will drop
[NEW YORK] Oil prices strengthened on Thursday, with US crude gaining nearly 2 per cent after traders saw an industry report suggesting domestic crude stockpiles would soon decline again after a surprise rise in the latest week.
Traders said prices rallied early when industry information provider Genscape reported that crude inventories at the Cushing, Oklahoma, delivery hub for US crude, dropped 1.1 million barrels since Friday, July 27.
On Wednesday, prices sank when the US government reported that in the prior week, total US inventories rose 3.8 million barrels, while supplies at Cushing fell 1.3 million barrels.
"There's an expectation that the build from this week will be gone next week," said Phil Flynn, an analyst at Price Futures Group in Chicago. He also noted US monthly production figures fell in May.
Brent crude futures settled up US$1.06, or 1.5 per cent at US$73.45 a barrel. US crude rose US$1.30, or 1.9 per cent, to US$68.96 a barrel.
Before the Genscape report sparked a rally, futures fell early on concerns about oversupply.
Saudi Arabia, Russia, Kuwait and the United Arab Emirates have increased production to help to compensate for an anticipated shortfall in Iranian crude supplies once US sanctions take effect.
The Organization of the Petroleum Exporting Countries and partners including Russia had cut output to rebalance supply and demand.
"Oil is holding up reasonably well ... A lot of this is the risk premium priced in for Iran and when do we start seeing an impact on supply there," ING commodities strategist Warren Patterson said.
"At the moment, there is a mismatch in timing, where there is increasing Opec supply and yet we're not seeing a significant reduction in Iranian supply," Mr Patterson said.
US officials told Reuters on Wednesday that they believe Iran is preparing to carry out a major exercise in the Gulf, apparently moving up the timing due to heightened tensions.
US President Donald Trump's decision to pull out of an international nuclear deal and reimpose sanctions on Iran has angered Tehran.
"There are a lot of escalation points that could occur very quickly and that worries me," Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney, said.
Worries about the possible loss of Iranian supply are being somewhat offset by concerns that global trade tensions could slow economic growth and crimp energy demand.
Mr Trump has turned up pressure on China for trade concessions by proposing a higher 25 per cent tariff on US$200 billion of Chinese imports. China has said it will retaliate.
"It is almost certain that China will impose additional duties on oil and refined products imported from the US if the Trump administration implements additional tariffs on the next tranche of Chinese goods. This could severely dent the competitiveness of US oil and derivatives in the Chinese market," said Abhishek Kumar, senior energy analyst at Interfax Energy.