Falling inventories push US oil to 14 month high

Oil prices on both sides of the Atlantic have risen today, with the US benchmark climbing to a 14-month high near $105 per barrel, buoyed by a bigger-than-expected drop in inventory in the United States.

But worries about a sluggish Chinese economy, underlined by bleak June trade data, kept a lid on oil price gains.

US crude rose 93 cents to $104.46 a barrel this moring, and earlier hit a 14-month high of $104.79.

Brent edged up 8 cents to $107.89 a barrel, slipping from a high of $108.12 after the data from China that fuelled worries about demand from the world's second largest oil consumer.

"China was the big focus for a while but now it seems the US is the main driver for both bullish and bearish views," said Tony Nunan, risk manager at Mitsubishi Corp. "Suddenly, it seems investors have caught on to (U.S. oil) as the investment of choice," he said.

The spread between Brent and US oil narrowed 85 cents to $3.43 as the US benchmark gained on data showing a drawdown in stocks.

US crude stocks fell nearly 9 million barrels last week, compared with analysts' expectations for a drop of 3.3 million barrels, according to the American Petroleum Institute. The US Energy Information Administration is scheduled to release its inventory report later in the day.

But analysts pointed out that the drop in US stockpiles, which is boosting oil prices, is because of the summer driving season there and that global demand prospects remain weak.

"The market is too high from a fundamentals point of view. It is riding on the back of expectations of a revival in US demand. But that revival we are seeing now is more seasonal, and there is no clear indication yet of a steady revival in demand," said Jonathan Barratt, chief executive of Sydney-based commodity research firm Barratt's Bulletin.

China's crude imports for the first half of the year fell 1.4 per cent from a year ago. "I expect crude oil imports will continue to slow because the overall economy is slowing," Mr Barratt said.

Reuters