NEW YORK: Oil hit a six-week high on Wednesday after a surprise decline in U.S. inventories and as concern persisted over possible disruption to Middle East supply.
Data released by the U.S. Energy Information Administration (EIA) on Wednesday morning showed a surprise 2.6 million barrel draw in crude inventories. Analysts had expected a 2.5 million barrel build.
Brent crude futures were up $1.73, or 2.6 percent, at $69.15 per barrel by 12:50 a.m. EDT (1650 GMT). Brent has risen by nearly 12 percent since hitting a two-month low of $61.77 in early February.
U.S. West Texas Intermediate (WTI) crude futures were up $1.52, or 2.4 percent, at $65.05 a barrel.
"A few things happened," said Jim Ritterbusch, president of Ritterbusch and Associates, referring to the data released by the EIA.
"Crude imports dropped by half a million barrels per day, that contributed to the draw. We saw refinery runs increase more than expected by around 400,000 barrels per day so that ate up a lot of crude. And exports were up slightly," he said.
Saudi Arabia's Crown Prince Mohammed bin Salman on Tuesday arrived in Washington, raising speculation the United States could reimpose sanctions on Iran, following renewed criticism of the 2015 nuclear deal.
"So even though you do see signs that the market is lax on the physical side, do you go aggressively bearish when you have the potential for something happening between the U.S. and Iran?"
Analysts also pointed to the nomination of Mike Pompeo as U.S. Secretary of State as a risk to oil markets, given he fiercely opposed the Iranian nuclear deal as a member of Congress.
Energy consultancy FGE said new U.S. sanctions on Iran could result in a 250,000 to 500,000 bpd drop in its exports by year-end, compared with crude exports of roughly 2.0 million to 2.2 million bpd since early 2016, when sanctions were lifted.
Analysts at Commerzbank said sanctions against Iran would have a greater impact on an undersupplied market than in an oversupplied one.
And market supply is increasingly being affected by U.S. output, which continues to surge. Wednesday's EIA data, in addition to showing inventory draws, also showed that weekly crude output had hit an all-time high.
"So far, the market is sort of ignoring the increase in production," said Ritterbusch.
"We now have production above 10.4 million bpd and it's going to keep rising; and the market is eventually going to have to reckon with that," he said.