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Oil settles up near $75; sharp U.S. inventory drop counters virus worry

·2-min read
FILE PHOTO: A crude oil tanker is docked at Isla Oil Refinery PDVSA terminal in Willemstad on the island of Curacao

By Laura Sanicola

NEW YORK (Reuters) -Oil settled near $75 a barrel on Wednesday after data showed U.S. crude inventories fell to pre-pandemic levels, bringing the market's focus back to tight supplies rather than rising COVID-19 infections.

Brent crude ended the session up 26 cents, or 0.4%, to $74.74 a barrel, after posting on Tuesday its first decline in six days. U.S. West Texas Intermediate (WTI) crude settled up 74 cents, or 1%, at $72.39.

Crude inventories fell by 4.1 million barrels in the week to July 23, the U.S. Energy Information Administration (EIA) said, helped by lower imports and a decline in weekly production. Gasoline stocks also dropped - bringing them largely in line with pre-pandemic levels. [EIA/S]

Gasoline product supplied, a measure of demand, has reached a four-week average of 9.5 million barrels per day, the highest levels since October 2019, according to EIA data.

"A rebound in implied demand for both gasoline and distillates, as well as lower refinery runs, has encouraged decent inventory draws for both," said Matt Smith, director of commodity research at ClipperData.

Oil prices are up 45% this year, helped by demand recovery and supply curbs by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+.

The group agreed to increase supply by 400,000 barrels per day from August, unwinding more of last year's record supply cut, but this is seen as too low by some analysts given the rebound in demand expected this year. [OPEC/M]

The United States' supply response to higher prices has also been muted so far. Output could take more than four years to reach pre-pandemic levels, oil producer Hess Corp said on Wednesday during the company's second quarter earnings call.

However, a rising number of COVID-19 cases worldwide, despite vaccination programs, has limited the upside for oil and remains a concern.

Gasoline demand in the United States and Europe has begun to plateau. Analysts note that globally, pre-pandemic demand levels may not be seen until beyond next year if coronavirus infections and the slow pace of vaccinations further entrenches structural changes in demand.

The U.S. economic recovery remains on track despite the rise in COVID-19 infections, the Federal Reserve said on Wednesday in a new policy statement that remained upbeat and flagged ongoing talks around the eventual withdrawal of monetary policy support. The central bank left interest rates at 0%.

(Reporting by Laura Sanicola; Additional reporting by Alex Lawler in London, Sonali Paul in Melbourne and Koustav Samanta in Singapore; Editing by Carmel Crimmins, Will Dunham, Jason Neely, David Evans and David Gregorio)

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