Oil rises on U.S. oil stock decline and Egypt tension

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A sharp decline in crude stockpiles in top consumer the United States and political unrest in Egypt, which could destabilise the Middle East and lead to supply disruptions, sent U.S. oil to a 14-month high on Wednesday.

U.S. crude rose above $100 a barrel, closing its gap with Brent, after the American Petroleum Institute reported that U.S. crude stocks dropped by 9.4 million barrels last week. Analysts had expected a draw of 2.3 million barrels.

Both benchmarks gained for a third straight day, drawing support from rising tension in the Middle East after Egypt's President Mohamed Mursi rejected an army ultimatum to step down. In Libya, meanwhile, worker protests have shut several oilfields.

U.S. oil was up $1.86 at $101.46 a barrel by 1315 GMT, having touched $102.18 in earlier trade. Brent rose $1.48 to $105.48.

"The oil market is ignoring slightly weaker share prices and the stronger dollar as it has its own very bullish issues to deal with," said Tamas Varga, oil analyst at broker PVM Oil Associates. "These include the crisis in Egypt (and) U.S. stock draws."

Investors will seek confirmation of the significant decline in U.S. crude inventories later on Wednesday when the U.S. Energy Information Administration releases its data.

Brent's premium to West Texas Intermediate crude sank to a low of $3.09, the weakest since December 2010, and the spread may narrow further on a drop in U.S. inventories.

Projects aimed at shifting crude from the oversupplied hub of Cushing, Oklahoma, to refineries on the Gulf Coast will lower transport costs and shrink the price gap between Brent and WTI.

Amrita Sen, of Energy Aspect, sees U.S. crude overtaking Brent, for the first time in nearly three years.

"We expect WTI to go above Brent in the fourth quarter due to the start-up of new pipelines such as Keystone XL South and the tightening of WTI specs," said Sen, who had predicted the spread would narrow sharply in the third quarter.

"I think weaker European margins have weighed on Brent and, of course, very strong U.S. margins supported WTI."

But a slew of weak data from China, which has stoked concern over the demand outlook from the world's No.2 oil consumer, may keep a lid on prices.

A survey showed June growth in China's services sector at its weakest for nine months. This follows reports that showed China's manufacturing growth plumbed multi-month lows in June as foreign and domestic demand waned.

"Recent indicators have pointed to a slowing Chinese economy, driven by softer industrial and export performance, and these should result in lower oil import growth," National Australian Bank analysts said.



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