Oil climbs as surprise drop in US crude stocks outweighs European vaccine woes

SINGAPORE: Oil prices climbed on Wednesday as investors weighed a recovery in US refinery activity as industry data showed US crude stockpiles unexpectedly fell last week against concerns of rocky demand in Europe.

Brent crude futures rose 35 cents, or 0.5%, to $68.74 a barrel by 0641 GMT, after initially falling as much as 27 cents.

US West Texas Intermediate (WTI) crude futures rose 43 cents, or 0.7%, to $65.21 after falling as much as 18 cents in early trade.

The price gains halted three straight sessions of declines for both benchmarks.

US crude inventories fell by 1 million barrels in the week to March 12, according to trading sources citing data from the American Petroleum Institute.

Analysts in a Reuters poll had expected a build of 3 million barrels.

"The market was wrong-footed but still pleasantly surprised after US oil stockpiles unexpectedly fell last week," said Stephen Innes, chief global market strategist at Axi.

At the same time, gasoline stocks fell less than expected, declining by 926,000 barrels, compared with estimates for a draw of 3 million barrels.

The narrower weekly draw in gasoline stocks signalled that refiner activity was normalising after a big freeze in Texas smothered production in the previous month, Innes said in a note.

The historic icy spell in the southern US states knocked out nearly a quarter of the country's refining capacity last month.

Traders will be looking for confirmation of the drawdown in crude stocks in official data due from the Energy Information Administration due on Wednesday.

Investors are also looking to the results of the US central bank's Federal Open Market Committee (FOMC), which ends its two-day meeting on Wednesday, for indications on the direction of monetary policy.

Oil prices have been in a "directionless range trading over the past few sessions as oil markets also await the FOMC," said Jeffrey Halley, senior market analyst at OANDA.

Brent was content to bounce around in a $67.50 to $70.00 a barrel range, with WTI anchored in a $64.00 to $66.00 a barrel range, Halley added.

The market has drifted lower over the past few days as more European countries pause inoculations of AstraZeneca's COVID-19 vaccines due to concerns over possible serious side effects, which could slow a recovery in fuel demand.

Trading in oil futures is now as heavy as it was in the first months of the COVID-19 crisis with oil bulls and bears rushing to hedge against jolts in prices.

While demand is growing in India and the United States, it remains weak in Europe, ANZ said in a research note, noting France's road fuel consumption fell 10.8% in February from a year earlier, according to the country's petroleum industry federation.