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Published: Tue, July 12, 2016
Economy | By Melissa Porter

Oil down 5% to two-month lows as United States crude draw disappoints

Oil down 5% to two-month lows as United States crude draw disappoints

United States crude reacted negatively to the EIA Crude Oil Inventories report, although the reading was close to the forecast.

US crude closed up 0.6 percent in choppy trading Friday, but was down almost 8 percent for the week.

According to the U.S. Energy Information Administration, crude oil inventories declined by a less-than-expected 2.2 million barrels last week to 524.4 million, which the EIA considered to be "historically high levels for this time of year".

Preliminary weekly data showed US production fell by 194,000 barrels per day, primarily due to declines in Alaska's output. In the June policy meeting, policymakers expressed concerns about a slowdown and hiring and the health of the USA economy, and the underlying tone was one of prudence and caution The June meeting took place just one week before the Brexit referendum, and in the minutes showed that Fed policymakers adopted a "wait and see" attitude about Brexit.

Oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the USA increased by 10 last week to 351, marking the fifth increase in six weeks.

"Steadily declining USA crude production continues to underpin our view that the global market has shifted from massive oversupply to broadly balanced in the second half", Mike Wittner, head of oil market research at Societe Generale SA, said in a report.

U.S. benchmark West Texas Intermediate for August delivery, rose 27 cents to US$45.41 a barrel on the New York Mercantile Exchange. WTI for August delivery fell $2.17 to $45.26 a barrel after the EIA report, reversing earlier gains. Total volume traded was about 32 percent below the 100-day average. Brent crude, used to price global oils, lost $1.66, or 3.4 per cent, to $47.14 a barrel in London.

Still, Brent and USA crude were heading for weekly losses of roughly 7%, their deepest declines since January and February respectively.

While the API figures sent WTI higher, the official data compiled by the EIA immediately weighed on the USA benchmark.

"Crude imports to Asia over the last few months are falling".

Inventories in the Midwest dipped 2.7 percent to 151 million barrels last week while inventories at Cushing fell 1 percent to 64.2 million barrels. But the EIA's figure came in just below the decline of 2.3 million barrels forecast by analysts in a Reuters poll but far less than the 6.7 million-barrel draw reported by trade group the American Petroleum Institute. Both of the week's oil indicators gave little sign of improvement for oil price, with supply and inventories still at significantly higher levels.

A strike by oil workers in Nigeria entered a second day and a gradual shutdown of facilities is in progress, the Pengassan union said.

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