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Oil catapulted high as US stockpiles surprise

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Oil prices jumped on Wednesday lifted by a surprise decline in US crude stocks and news of another supply outage in Nigeria, an Opec member.

Brent, the international oil marker, and West Texas Intermediate, the US oil benchmark, were both trading lower ahead of government data that was expected to show an increase in commercial US oil inventories to a record high.

Rather than increasing, the report from the US Energy Information Administration showed stocks had fallen for the time since March. Gasoline and distillate inventories also declined.

Ice July Brent rose by more than 3.5 per cent to $47.12 a barrel while Nymex June WTI added 3 per cent to $46.01 a barrel, erasing earlier losses.

“The trend is pretty clear that gasoline demand is headed for an all-time record in 2016 — and the market is reflecting that,” said Andy Lipow, president of Lipow Oil Associates, a consultancy in Houston.

Preliminary data showed US petrol demand of 9.65m barrels a day last week, the highest since last summer and approaching record levels reached before the financial crisis. In the year to date, US petrol demand has grown by 4.4 per cent from the same period of 2015, the EIA said.

The report also showed little impact from devastating wildfires in the forests of northern Alberta, home to Canada’s oil sands production.

In fact, US imports of Canadian oil rose slightly last week to 2.95m b/d. Mr Lipow said shippers were able to maintain supplies by drawing down oil stored in tanks in Alberta.

Oil prices were also supported by news that Royal Dutch Shell had halted exports of Bonny Light crude from Nigeria because of a leak on a pipeline.

The decision by Shell to declare force majeure on the exports — a legal measure enabling it to halt shipments without breaking contracts — comes less than a week after Chevron shut one of its platforms in the country following an attack by a new militant group.

Together the outages have reduced Nigeria’s oil exports to around 1.5m b/d, the lowest level in more than two decades.

A series of supply disruptions from Libya to Kuwait and Venezuela have helped tighten the oil market this year.

“The militants in the Delta tend to like media exposure and given the recent pattern of escalation it is reasonable to expect that they use the additional press coverage that will come with the presidential visits to embarrass the Nigerian President,” said Olivier Jakob of Petromatrix, a Zug-based consultancy.

The French President is due to travel to Nigeria later this week to attend a regional security summit in Abuja on Saturday along with the heads of states from Cameroon, Niger, Chad and Benin.

Oil prices have rebounded by almost 70 per cent from their January lows. But some investors are worried the rally may be running out of steam.

Last week, hedge funds and other speculators cut their net long position — the difference between bets on rising and falling prices — in WTI and Brent by 6.5 per cent to 620m barrels.

Traders said attention would now switch to the monthly oil market report from the International Energy Agency on Thursday morning.

In light of recent data the world’s leading energy forecaster could revise upwards its demand growth estimate for 2016, which currently stands at 1.2m b/d.

“It could be an interesting update given the series of recent supply disruptions in Opec and non-Opec countries but as well due to the strong US demand data indicated in weekly [EIA reports],” added Mr Jakob.

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