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Oil up nearly 3% on huge U.S. draw; Rates worry limits upside

Oil up nearly 3% on huge U.S. draw; Rates worry limits upside
© Reuters. — Oil prices jumped nearly 3% Wednesday, recovering the previous day’s loss and more, after a huge weekly drawdown in U.S. crude stockpiles. But the rally appeared restrained by lingering worries about interest rates as global central banks vowed a greater fight against inflation.

New York-traded West Texas Intermediate, or , settled up $1.86, or 2.8%, at $69.56 per barrel, after an intraday peak at $69.70. On Tuesday, WTI fell 2.4%. 

London-traded crude was up $1.77, or 2.5%, at $74.03, after a session peak at $75.08. Brent was down 2.6% in the previous session. 

It was the first meaningful gain in oil prices since a near 3% run-up a week ago.

Yet, the upside seemed restrained by fears about further rate hikes central banks could put up in their quest to quell inflation — a good part of which is caused by higher energy prices. 

A panel discussion on Wednesday hosted by the European Central Bank and including the heads of the Federal Reserve, Bank of England and Bank of Japan, showed nearly all on board with higher interest rates.

“This really is the problem for any rally now in oil,” said John Kilduff, partner at New York energy hedge fund Again Capital. “The central banks will likely follow through with their own restrictive action, which will slow economic growth and, with that, demand for oil.” 

Biggest weekly crude draw in five

Wednesday’s market run-up came as the  Energy Information Administration, or EIA, reported that the U.S. fell by 9.603 million barrels during the week ended June 23, way above the 1.757M barrel decline forecast by industry analysts polled by 

It was the largest weekly draw in crude since the week to May 21 when the EIA reported a drop of 12.456M.

Last week’s plunge adds to the 3.831M barrel draw in the prior week to June 16.

The crude draw reported by the EIA also came with an unusual caveat: the release of 1.4M from the U.S. Strategic Petroleum Reserve, without which the inventory drop would logically have been 11M.

On the side, the EIA reported a build of 0.603M barrels. Analysts had expected the agency to cite a draw of 0.126M barrels instead, after the previous week’s rise of 0.479M barrels. Automotive fuel gasoline is the No. 1 US fuel product.

In the case of , the EIA reported a build of 0.124M barrels. Analysts had forecast a rise of just 0.782M barrels last week, against a previous decline of 0.433M. Distillates are refined into , diesel for trucks, buses, trains and ships, and fuel for jets.

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