Oil pushes higher on massive U.S. inventory draw, economic fears linger

Investing.com -- Oil prices rose in Asian trade on Wednesday as industry data signaled a sharp drop in U.S. inventories, heralding tighter supplies, although concerns over slowing economic growth and a U.S. debt default still persisted.

Data from the American Petroleum Institute (API) showed that U.S. inventories shrank at their fastest pace in nearly six months over the past week, as gasoline demand heats up ahead of the travel-heavy summer season.

The reading usually heralds a similar reading from government data due later in the day, and, coupled with signs of disruption in U.S. crude supplies, points to tighter oil markets in the coming days.

Brent oil futures rose 1% to $77.78 a barrel, while West Texas Intermediate crude futures rose 1.3% to $73.91 a barrel by 21:41 ET (01:41 GMT). 

Both contracts rose sharply over the past two sessions, tracking a spike in U.S. gasoline futures as markets bet on increased fuel consumption in the summer season. U.S. gasoline futures surged 2% to a five-week high after the API data. 

A warning from the Saudi Arabian energy minister against shorting oil also pushed up prices. This came as the effects of recent production cuts by the OPEC began to be felt, which, coupled with signs of increasing demand, pushed up expectations of a near-term supply crunch.

But on the other hand, signs of worsening economic conditions continued to trickle in. Weaker-than-expected manufacturing activity readings from the U.S., euro zone, and the UK signaled more economic pain in the coming months, especially as industrial production slows.

The data follows weaker-than-expected Chinese manufacturing activity readings released earlier this month, which pointed to a slowing economic rebound in the world’s largest oil importer.

Negotiations between Democrat and Republican lawmakers continued on Tuesday, but both parties offered little cues on when a deal could be reached. This comes just before a June deadline for a U.S. default, which could have far-reaching consequences for the global economy.

Crude prices are still trading down about 6% for the year, hit largely by concerns that worsening economic conditions will stymie a recovery in demand. 

A stronger dollar also weighed on crude, as markets awaited more cues on monetary policy from the minutes of the Federal Reserve’s May meeting, due later in the day.