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Oil prices plunge as drop in US inventories encourage more production

Current oil price rally could encourage more production, particularly from the US: Analysts

Reuters  |  London 

Oil, Oil Prices, US
Crude oil storage tanks are seen from above at the Cushing oil hub, appearing to run out of space to contain a historic supply glut that hammered prices, in Cushing, Oklahoma

prices rose to near eight-week highs on Wednesday, as a fall in bolstered expectations that the long-oversupplied was moving toward balance.

Brent crude futures rose 40 cents to $50.60 a by 1213 GMT, after rallying more than 3 percent on Tuesday.

U.S. West Texas Intermediate futures climbed 50 cents to $48.39 a

U.S. crude stockpiles fell sharply last week as refineries boosted output, while gasoline inventories increased and distillate stocks decreased, the industry group the Institute said on Tuesday.

Crude inventories fell 10.2 million barrels in the week ending July 21 to 487 million, more than the expected decrease of 2.6 million barrels. Data from the U.S. Information Administration on Wednesday could provide more support, with forecasts of a drop for a fourth week in a row.

Tuesday's stock draw added to hopes the long-awaited rebalancing was underway. said on Monday it would limit exports to 6.6 million barrels per day (bpd) in August, down nearly 1 million bpd from a year earlier.

"The has been tightening and the refinery margins are strong," said PetroMatrix managing director Olivier Jakob, saying the U.S. stock draw offered a boost to prices. "You add geopolitical risk premium for Venezuela, and you've got a strong "

Venezuela, an member producing about 2 million bpd of oil, faces deepening economic woes and protests.

President Nicolas Maduro's adversaries plan strikes to push him to abandon a weekend election. The is considering financial sanctions to halt for the Venezuelan

Nigerian output slipped this week as leaks forced Shell to shut a pipeline exporting some 180,000 bpd of Nigeria, which has been exempted from OPEC-led production curbs, has agreed to cap or cut output when it stabilised at 1.8 million bpd.

But analysts said the current price rally could encourage more production, particularly from the

"Relieved bulls should be careful what they wish for. Any price rebound will only embolden U.S. shale producers at a time when rumours have started to emerge that the U.S. shale boom is slowing," PVM analyst Stephen Brennock said in a note.

Anadarko Petroleum Corp said on Monday it would cut its 2017 capital budget by $300 million because of depressed prices, the first major U.S. producer to do so, after posting a larger-than-expected quarterly loss.

First Published: Wed, July 26 2017. 18:39 IST