Oil reverses as steep US inventory drop momentarily calms oversupply fears

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U.S. crude rallied on Wednesday, helping to pull Brent off a 2-year low, as traders momentarily shrugged off fears of oversupply in favor of data showing a steep plunge in domestic oil inventories.

For most of the day, rising supply from Africa and Iraq offset mounting tensions in the Middle East and stronger-than-expected growth expectations in China. Weak European economic data and a rise in oil exports from Iraq, Libya and Nigeria have eroded the oil price, which is down around 14 percent this quarter, the biggest quarterly drop since the second quarter of 2012.

U.S. crude reversed earlier losses to trade higher following a report that stocks fell 4.3 million barrels last week to 358 million barrels, compared with analysts' expectations for an increase of 386,000 barrels. Nevertheless, crude stocks at the Cushing, Oklahoma, delivery hub rose by 191,000 barrels, the government's Energy Information Administration said.

Brent crude for November delivery was flat near $97 a barrel, after hitting a session low of $95.60, its lowest since July 2012. It was down more than 6.5 percent for the month so far, the biggest monthly drop since April 2013.

U.S. crude rallied by $1.24 to settle at $92.80 barrel, as the unexpected drawdown in weekly U.S. stocks offset earlier losses that had dragged it down to $91.12.

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The spread between the two benchmarks stood over $4, the second-narrowest intraday point since April.

Libya's national oil production is currently at 900,000 barrels per day (bpd), with the major El Sharara oilfield at 200,000 bpd, an official with the National Oil Corporation said on Wednesday.

Exports from Iraq's southern terminals have averaged 2.58 million bpd, according to shipping data for the first 23 days of September tracked by Reuters, up from the August average of 2.38 million. Nigeria's oil exports are expected to hit a 14-month high in November, adding more light, sweet crude oil to an already well supplied market.