Oil rebounds as U.S. crude stocks show surprise fall

Oil rebounds as U.S. crude stocks show surprise fall

LONDON (Reuters): World oil prices rebounded on Wednesday following a surprise drop in U.S. crude inventories which pointed to tighter supply ahead of the northern winter.

London futures for Brent Blend crude oil jumped by 28 cents to US$24.97 per barrel by midday, recouping some of the 47 cents lost in the first two days of the week.

Figures from the American Petroleum Institute (API) released after market close Tuesday showed crude oil stocks in the United States fell 1.1 percent to 312 million barrels in the week to July 27.

Oil traders had expected them to rise, and the data counteracted recent bearish pressure from slowing growth in the United States, the world's largest oil consumer.

U.S. crude inventories are still 9.5 percent above last year, despite the latest fall, and the news sharpened attention on the recent decision by the OPEC cartel to cut production by four percent from September 1, just as the northern hemisphere heads into winter.

"The drop in crude oil supplies compounds the importance of the million barrel per day OPEC cut," said Tim Evans, senior market analyst at IFR Pegasus. "This means we'll have less of a cushion to handle it."

The API data was a shot in the arm to flagging oil markets, which have been trending downwards since last week as concerns over sluggish demand for petroleum have outweighed the bullish impact from OPEC's latest supply deal.

Last week, the Organization of the Petroleum Exporting Countries agreed to its third output reduction this year, which will leave group production some 13 percent, or 3.5 million barrels per day, below levels at the beginning of 2001.

The latest cut began to filter into the market on Wednesday when the United Arab Emirates informed term customers in Japan and South Korea, two of Asia's biggest crude buyers, that it would supply five percent less of one of its grades in September.

OPEC President Chakib Khelil said on Tuesday that the cartel could increase production by January if the economy in the United States, the world's biggest oil consumer, started to show signs of recovery from the current downturn.

OPEC is scheduled to meet at the end of September, but Khelil, who is also Algerian oil minister, said it was unlikely there would be enough data by then to gauge any upswing in the U.S. economy or the severity of the oncoming winter.