Oil is rallying toward fresh highs as US crude inventories see biggest drop since 2016

Oil rallied more than 2% n Wednesday as data showed US crude inventories last week saw the largest drawdown in nearly two years.

West Texas Intermediate climbed as much as 2.8% to 72.77 a barrel, approaching a year-to-date high of $US72.83. Brent, the international benchmark, was up 1.62% to $US77.80 a barrel at 11:15 a.m. ET.

A report by the Energy Information Administration showed US crude inventories dropped by 9.9 million barrels in the week ending June 22, the largest decline since September 2016. Analysts had expected a drawdown of less than half that.

Prices had already been rallying this week after the US said all countries must stop buying oil from the Islamic Republic by November or face sanctions, as part of Trump’s withdrawal from the Iran nuclear deal. The international community had expected sanctions waivers for some countries, a tactic used in the Obama era to avoid supply shocks.

Supply disruptions in Canada have also offered support to crude. An outage at Syncrude has threatened to withdraw about 350,000 barrels per day from the market through at least July, adding to a mounting list of major producers where output is at risk, including in Venezuela and in Libya.

“With renewed geopolitical risk factors likely to stimulate concerns of supply disruptions, oil prices have scope to extend gains in the near term,” Lukman Otunuga, an analyst at FXTM, said.

The rally comes days after OPEC and other supply-cutting countries led by Russia reached a deal officials said was partly designed to prevent market overheating. As part of a 2015 agreement to coordinate production levels, the cartel said it would increase output beginning in July.

WTI is up nearly 60% over the year.

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