Oil up two percent after two-day drop, API boosts crude draw hopes

By Barani Krishnan

NEW YORK (Reuters) - Oil prices settled up nearly 2 percent on Wednesday as robust U.S. economic data lifted crude futures from two days of declines, with the market extending gains in post-settlement trade on bets for a sharp drop in U.S. crude stockpiles.

The American Petroleum Institute trade group said its data showed U.S. crude stockpiles fell by 6.7 million barrels last week, declining for a seventh week in a row. The API figure was nearly triple the crude drawdown expected by analysts in a Reuters poll.

Gasoline inventories reported by API were also markedly lower by 3.6 million barrels versus a 0.4 million-barrel decline projected by analysts.

The U.S. Energy Information Administration will issue official inventory data on Thursday.

"These are definitely supportive numbers that have caught the market off guard after the bearish sentiment that prevailed earlier today," John Kilduff, partner at New York energy hedge fund Again Capital, said of the API data.

Oil prices were pressured in early trading by a gasoline glut and woes from Britain's European Union exit. The market rebounded later on upbeat U.S. economic data showing a seven-month high in U.S. services industry activity.

Brent crude settled up 84 cents, or 1.8 percent, at $48.80 a barrel. It got as high as $49.30 after the release of the API data.

U.S. crude gained 83 cents, or 1.8 percent, to settle at $47.43. It rallied to $47.95 in post-settlement trade.

Despite Wednesday's price advance, some traders and analysts cautioned about a glut of U.S. gasoline oversupplies that could offset the bullish impact of crude drawdowns.

The profit from turning U.S. crude into gasoline <1RBc1-CLc1>, known as the gasoline "crack," hit a 4-1/2-month low earlier on Wednesday despite expectations a record number of motorists would hit the road during the July 4 holiday weekend.

Gasoline stocks in the U.S. East Coast, home to the New York Harbor delivery point for the fuel, reached a record high of 72.5 million barrels in the week ended June 24, data showed. Vessels carrying gasoline-making components could not unload at the harbour this week because of lack of space.

"Neither the gasoline glut nor Brexit is going away for now," said David Thompson, executive vice president at Washington-based commodities-focused broker Powerhouse.

(Additional reporting by Libby George in London and Aaron Sheldrick in Tokyo; Editing by Steve Orlofsky and Peter Cooney)