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U.S. crude inventory fall buoys oil, worries about rally persist

Reuters  |  NEW YORK 

By David Gaffen

NEW YORK (Reuters) - prices jumped on Wednesday and settled near three-year highs after U. S. data showed a drop in inventories and production, even as fuel inventories rose.

U. S. inventories fell 4.9 million barrels last week, more than the 3.9-million decline forecast, but bigger-than-expected builds in gasoline and fuel stocks offset that drawdown, the Information Administration reported.

The market was bolstered modestly by data showing a sharp decline in U. S. production last week. Analysts said that could have been the result of extreme cold temperatures across the

"The lower draw in stocks, combined with the strong builds in product stocks is bearish for prices. But market participants could also use the sharp drop in production as an excuse to buy," said Carsten Fritsch, analyst at in Frankfurt,

U. S. Intermediate (WTI) futures settled at $63.57 a barrel, up 61 cents, or 1 percent, their highest settlement since December of 2014. Earlier in the session, prices hit $63.67, their highest since Dec. 9, 2014.

Brent futures settled at $69.20 a barrel, up 38 cents. The session high for the benchmark was $69.37, highest since May 2015.

The market has been buoyant for weeks, with U. S. futures at highs not seen since late 2014, and Brent less than $1 per barrel away from a similar milestone.

prices have surged more than 13 percent since early December, and there are indications of overheating.

Analysts warned the market is not paying enough attention to U. S. production increases.

A broad, market rally, including stocks, has also fed investment into futures. Also, the dollar fell in a broad sell-off after a report that was ready to slow or halt its U. S. treasury purchases. A weaker dollar generally boosts oil, which is priced in the U. S. currency.

"When it comes to hedge fund buying in general the commodities trade is front-and-centre and that momentum is building for oil," said Rob Thummel, at in Leawood,

The rally has brought out some concerns that the market could overheat, especially as U. S. production is expected to rise to new records.

On Tuesday, the EIA boosted output expectations, saying it now sees overall production at record highs, surpassing 11 million barrels per day (bpd) by 2019.

U. S. production is expected to hit 10 million bpd next month, behind only and

Members of the Organization of the Exporting Countries fear current price gains could prompt U. S. shale companies to flood the market. OPEC, along with non-members including Russia, have extended through the end of this year a deal to cut supply by 1.8 million bpd.

(Additional reporting by in New York and Libby George in London; editing by and David Gregorio)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Thu, January 11 2018. 02:17 IST