By Scott DiSavino
NEW YORK (Reuters) -Oil prices rose about 2% on Wednesday, reflecting a bigger-than-expected weekly drop in inventories and as a weaker U.S. dollar overshadowed signs of slower economic growth in China.
futures rose $1.35, or 1.6%, to $85.08 a barrel at 1:33 PM EDT (1733 GMT), while U.S. West Texas Intermediate (WTI) crude rose $2.09, or 2.6% , rose to $82.85.
On Tuesday, Brent closed at the lowest level since June 14 and WTI at the lowest level since June 21.
Brent’s premium over WTI has fallen to around $3.65 a barrel, the lowest since October 2023. The narrowing spread means energy companies have less incentive to spend money sending ships to the US to deliver crude to be collected for export.
In the US, the Energy Information Administration said energy companies pulled 4.9 million barrels of crude oil from storage in the week ending July 12.
That compares with the 30,000 barrel drop that analysts forecast in a Reuters poll and a drop of 4.4 million barrels in a report by the American Petroleum Institute trade group.
In U.S. refining news, diesel and 321 crack spreads, which measure refining profit margins, fell to their lowest levels since December 2021 and January 2024, respectively.
A weaker U.S. dollar also helped support oil prices after the greenback hit a 17-week low against a basket of major currencies.
A weaker dollar could boost oil demand by making dollar-denominated commodities like oil cheaper for holders of other currencies.
SLOW GROWTH IN CHINA
China, the world’s biggest oil importer, saw its economy grow 4.7% in the second quarter, official data showed earlier this week, the slowest growth since the first quarter of 2023, capping crude oil price increases limited.
“Recent data points to a slowdown in growth in the United States, the eurozone and China,” analysts at Citigroup’s Citi Research unit said in a report. “Central banks,” they added, “are getting closer to a point where they will have room to seriously cut rates.”
In the US, single-family home construction fell to an eight-month low in June due to higher mortgage rates, indicating that the housing market likely held back economic growth in the second quarter.
Top U.S. Federal Reserve officials said Wednesday that the central bank is “closer” to cutting rates, given the improved trajectory of inflation and a more balanced labor market. These comments have paved the way for a first cut in borrowing costs in September.
The Fed aggressively raised rates in 2022 and 2023 to curb the rise in inflation. Borrowing costs for consumers and businesses rose, slowing economic growth and reducing demand for oil.
Lower interest rates could boost oil demand.
