Oil prices spike on unexpected drop in U.S. crude stockpiles By Reuters

By David Gaffen

NEW YORK (Reuters) – Oil prices spiked on Wednesday after U.S. inventories dropped by nearly 5 million barrels against expectations for a modest increase, fueling additional concern about tight supplies worldwide.

The prospect of increased supply from Iran and the United States had pressured the market this week, but any resolution to the talks over reviving the 2015 nuclear deal remains far off.

stocks fell by 4.8 million barrels last week, versus forecasts for a build of about 369,000 barrels. Stocks fell at the Cushing hub delivery hub for U.S. futures by 2.8 million barrels, and gasoline and distillate inventories were also lower.

futures gained $1.06, or 1.2%, to $91.84 a barrel as of 10:42 a.m. EST (1542 GMT). U.S. West Texas Intermediate crude rose 91 cents, or 1%, to $90.27 a barrel.

Crude benchmarks slid about 2% on Tuesday as Washington resumed indirect talks with Iran to revive a nuclear deal.

An agreement could lift U.S. sanctions on Iranian oil and quickly add supply to the market, although a number of vital issues need to be resolved.

“If U.S.-Iran talks continue to progress, this level should come under some pressure, while a collapse of negotiations could be the catalyst that drives the price towards triple-figure territory,” said Craig Erlam, senior market analyst at OANDA.

Market sentiment took a hit from the latest monthly report from the Energy Information Administration, which raised its outlook for U.S. crude production to average 11.97 million barrels per day this year.

Furthermore, industry worries over political risks worldwide had ebbed a bit on Wednesday, several analysts said.

“The concerns about a further escalation of the Russia-Ukraine conflict appear to have eased somewhat following the latest diplomatic efforts, which is reducing the risk premium on the oil price,” said Commerzbank (DE:) commodities analyst Carsten Fritsch.