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.