By Katya Golubkova and Trixie Yap
(Reuters) – Oil prices extended gains on Wednesday after industry data showed a surprise drop in U.S. crude inventories last week, a positive sign for demand, although markets were also closely monitoring hostilities in Middle East.
Brent crude futures rose 26 cents, or 0.29%, to $88.68 a barrel and U.S. West Texas Intermediate crude futures climbed 26 cents, or 0.31%. , at 83.62 dollars per barrel at 06:34 GMT.
U.S. crude inventories fell by 3.237 million barrels in the week ended April 19, according to market sources citing figures from the American Petroleum Institute. On the other hand, six analysts polled by Reuters expected an increase of 800,000 barrels.
Traders will be watching official U.S. oil and product inventory data, due at 10:30 a.m. EDT (2:30 p.m. GMT), to confirm the sharp decline.
U.S. business activity slowed in April to a four-month low, with S&P Global reporting on Tuesday that its composite output PMI, which tracks the manufacturing and services sectors, fell to 50 .9 this month, compared to 52.1 in March.
“This could help convince policymakers that rate cuts are necessary to support the economy,” ANZ analysts said in a note.
Interest rate cuts in the United States could support economic growth and, therefore, oil demand from the world’s largest fuel consumer.
Analysts remain optimistic that the latest developments in the Middle East conflicts will continue to support markets, although the impact on oil supplies remains limited for now.
“Overall, crude oil prices are well supported around current levels by the current Middle East risk premium. On the upside, the risk of a possible further increase in OPEC production at from June will help limit any significant upside potential,” said the head of market strategy for United Overseas. Bank (UOB) in Singapore Heng Koon How.
“We maintain our forecast of Brent consolidating to USD 90/barrel by the end of this year,” Heng added.
Israeli strikes intensified across Gaza on Tuesday, in the most intense bombardment in weeks.
“Recent reports suggest that Iran and Israel view ongoing operations as concluded against each other, with no follow-up action necessary at this time,” ING analysts said in a note.
“The United States and Europe are preparing for new sanctions against Iran, although these may not have an immediate material impact on oil supplies,” they added.
(Reporting by Katya Golubkova in Tokyo and Trixie Yap in Singapore; editing by Jamie Freed and Stephen Coates)
