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Oil surges past $106 as U.S. supplies drop

SAN FRANCISCO (MarketWatch) -- Oil futures surged past $106/bbl on Wednesday after weekly U.S. supplies dropped by more than twice the amount analysts expected.

Crude oil for August delivery (CLQ3) jumped $2.74, or 2.7% to $106.27/bbl on the New York Mercantile Exchange.
Prices last closed above $106 on May 1, 2012, based on the most-active futures contracts, according to FactSet data. They closed at $106.16 that day. If prices close above that level, that will mark the highest settlement since late March 2012, data show.

August Brent oil rose 50 cents, or 0.5%, to $108.31 a barrel on ICE Futures -- levels not seen since April of this year. The price differential between Brent and West Texas Intermediate crudes has narrowed to below $3/bbl, the lowest levels since 2010. It traded above $20 in February.

Nymex crude futures were trading at just above $105 right before the U.S. Energy Information Administration reported a 9.9 million-bbl decline in crude stockpiles for the week ended July 5. Analysts polled by Platts were looking for a 3.8 million-bbl decline.

The latest decline follows a decline of more than 10 MMbbl reported by the EIA for the week ended June 28.
The American Petroleum Institute late Tuesday had reported a 9-million-bbl drop for last week.

Crude supply levels are still above the five-year averages, but the "expectations of further inventory draws in the weeks to come" due to the movement of crude out of Cushing, Okla., the trading hub for Nymex oil futures, are helping prices go higher," said Tariq Zahir, managing member at Tyche Capital Advisors.

Still, "crude has technically broken out to the upside but are getting toward short-term overbought levels," he said. "We wouldn' t be surprised to see some profit taking at these levels."

The EIA also said Wednesday that gasoline supplies fell by 2.6 MMbbl while distillate stockpiles, which include heating oil, increased by 3 MMbbl. Gasoline stockpiles were expected to rise by 1.2 MMbbl, while forecasts called for an increase of 1.4 MMbbl for distillates.

On Nymex, August gasoline (RBQ3) rose 7 cents, or 2.5%, to $23/gal, and August heating oil (HOQ3) rose nearly 2 cents, or 0.6%, to $3/gal. Both reached $3 for the first time since April.

Rounding out action in the energy market, August natural gas (NGQ13) rose 1 cent, or 0.3%, to $3.67/MMbtu.

Dow Jones Newswires



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