Oil prices rally on drop in US supplies

Crude prices rallied Wednesday after a US petroleum supply report showed lower inventories and oil production.

US benchmark West Texas Intermediate for October delivery jumped $2.56, or nearly six percent, to $47.15 a barrel on the New York Mercantile Exchange.

European benchmark Brent oil for November delivery gained $2.00 to $49.75 a barrel in London.

The weekly petroleum inventory report from the US Department of Energy showed a 2.1 million barrel drop in inventories, including a 1.9 million barrel decline at the closely-watched Cushing, Oklahoma trading hub.

The decline at Cushing is a "big boy" in scale, said Bob Yawger, director of the futures division at Mizuho Securities. "That implies production is being lost in the US."

According to the report, US oil production fell for the sixth straight week, albeit by just 18,000 barrels per day, or about 0.2 percent.

"It wasn't much of a production slide this week, but the fact that Cushing was also down implies there may be a bigger (impact) in future production," Yawger said.

Oil market watchers have been waiting for a significant fall in US oil output due to a big drop in oil prices from more than $100 barrel in June 2014. Lofty US output has been a key factor in the supply glut that has depressed prices.

Analysts are also keeping an eye on the Federal Reserve, which could on Thursday announce the first US interest rate hike in more than nine years.

A rate hike could boost the dollar, potentially dampening demand for oil, which trades in the US currency on global markets.

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