Oil down 3 percent after modest U.S. draw; swings seen pre-UK vote

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Oil prices extended their losses on Wednesday, falling nearly 3 percent, after a smaller-than-expected U.S. inventory draw-down and jitters ahead of a vote on whether Britain should stay in the European Union.

Crude futures rose early in the day, before the U.S. Energy Information Administration (EIA) reported a stockpile decline of 917,000 barrels for the week ended June 17.

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While it was the fifth consecutive weekly draw for crude, the number posted by the EIA was smaller than a 1.7 million-barrel drawdown forecast by analysts in a Reuters poll. It was also about a third of the 5.2 million-barrel drop reported on Tuesday by trade group the American Petroleum Institute (API).

Oil futures had settled lower on Tuesday but rose in post-settlement trade after the API data showed the huge crude draw.

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On Wednesday, Brent crude futures were down $1.40, or 2.8 percent, at $49.22 a barrel by 1:45 p.m. EDT (1745 GMT). They fell 1 percent shortly after the EIA data, climbing hitting a session high of $51.24 early in the New York session.

U.S. crude’s West Texas Intermediate (WTI) futures fell $1.37, or 1.7 percent, to $49.08.
“Today’s report is decidedly bearish, which has caught markets off guard after yesterday’s API expectation of a 5 million-barrel crude draw,” Troy Vincent, analyst at New York-based crude cargo tracker ClipperData, said, referring to the EIA data.

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“Although gasoline demand is still strong relative to year-ago levels, a build to both gasoline and distillate inventories does not bode well for product prices either. With this report, we should expect WTI to move back below $49 this week.”

U.S. gasoline demand over past four weeks rose 3.9 percent year-on-year, but stocks of the motor fuel rose 627,000 barrels last week, while distillates grew 151,000 barrels.
Investors also braced for more market swings as the dollar gyrates on speculation over Britain’s referendum on the EU on Thursday. The greenback determines demand for dollar-denominated oil among holders other currencies when other fundamental factors are less compelling.

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“Though some may be forgiven for thinking that the outcome is a foregone conclusion, the inconsistency between the betting money and the polls mean that conditions are ripe for a fresh bout of volatility,” said Stephen Brennock of oil broker PVM.

In other industry news, top crude exporter Saudi Arabia said it may reprise its role of balancing supply and demand once the global market for oil recovers.

*Barani Krishnan, Aaron Sheldrick; Editing – Meredith Mazzilli & Marguerita Choy – Reuters

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