Oil rose on Wednesday after a large drop in US crude stockpiles and on concerns a Gulf of Mexico tropical storm could disrupt oil and natural gas output in the world's largest energy consumer. US crude futures settled up 95 cents at $73.33 a barrel after trading as high as $74.23 earlier. London Brent crude climbed $1.13 to $71.64 a barrel.
US crude stocks fell 5.2 million barrels last week in part due to lower imports, the Energy Information Administration said, surpassing forecasts for a 2.3 million barrel decline. "Crude is rallying here because of the large draw and because of the tropical storm in the Gulf of Mexico," said Mark Waggoner, president of Excel Futures.
A tropical depression in the Gulf of Mexico strengthened into Tropical Storm Erin and was expected to make landfall Thursday evening south of the refining hub at Corpus Christi, Texas, the US National Hurricane Center said.
Shell shut down a small natural gas production facility in the path of the storm on Tuesday and began evacuating nonessential personnel. Other companies operating in the Gulf, home to a third of US oil and gas production, were monitoring the situation.
Expectations that Tropical Storm Dean, currently in the mid-Atlantic Ocean, would strengthen into a hurricane this week further supported prices. Oil markets remain on edge over the US subprime mortgage crisis, which has rattled equity and other financial markets.
"The fallout from credit markets is not yet over," Harry Tchilinguirian, oil analyst at BNP Paribas, said in a report. "The more prolonged the weakness in equities is, the more negative market sentiment can turn. And, in the short run for oil, this could prompt a further liquidation of net long positions built up by non-commercial players."
US and European stock markets steadied on Wednesday, while bond prices rose, pushing the two-year Treasury note's yield down to 18-month lows as investors sought refuge from the credit sector's troubles in government debt.
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