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Oil rallies on surprise fall in US crude inventories

Crude oil dived to 6.5-year lows but finished the week in positive territory after a Chinese rate cut and solid US GDP numbers

Oil prices rallied Wednesday as an unexpected weekly fall in US crude oil inventories somewhat eased worries about demand in the world's largest economy. US benchmark West Texas Intermediate (WTI) for delivery in September rose 81 cents to $48.79 a barrel on the New York Mercantile Exchange. In London trade, Brent North Sea crude for September, the global benchmark, closed at $53.38 a barrel, up a modest eight cents from Tuesday's settlement. The US Department of Energy said Wednesday that American commercial crude inventories tumbled 4.2 million barrels in the week to July 24, to 459.7 million, still close to unprecedented levels. Analysts had expected a smaller increase. Falling inventories tend to push prices higher because they could signal strengthening demand. "There is the sense, especially after today's US inventories, that maybe the bearishness we see in the market was overplayed a little bit," said Phil Flynn of Price Futures Group. In addition to the big drop in US crude inventories last week, Flynn said, there was a decline in US crude production, by 145,000 barrels per day. "So that runs against the oversupply story, or at least slows down the oversupply (story), and with the market being so oversold, this gives us a bounce," he said. Since the beginning of July, the WTI futures contract, which had stabilized around $60 a barrel in the spring, has pulled back toward lows last seen in March -- when it hit a six-year low of $45. Flynn said that oil also found support from a report that Saudi Arabia is talking about reducing production at the end of summer. "Whether this is in response to the possible return of Iranian crude or just because they want to support prices it's hard to say, but it's the first time in a long time we see the Saudis having any intention at all of pulling back their production."