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Oil ends higher after US inventories show sharp drop

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Oil futures rose on Wednesday, with U.S. crude outpacing Brent, after oil stockpiles in the United States fell more than expected.

The U.S. Energy Information Administration said U.S. crude stocks fell by 4 million barrels last week, while gasoline and distillate stocks rose. Crude oil inventories at Cushing, Oklahoma, the delivery point of the U.S. crude contract, fell by 1.45 million barrels, the EIA said.

Price gains were curbed by a build of 5 million barrels in combined inventories of gasoline and distillates and a 1 percent decline in gasoline demand.

Brent crude for September delivery rose 60 cents to near $108 a barrel, after slipping 35 cents in the previous session. U.S. crude for September delivery gained 73 cents to end the session at $103.12 a barrel.

U.S. crude's discount to Brent hit a low of $4.51 earlier in the session, close to its lowest in three months, as high domestic refinery utilization rates signaled strong near-term demand for crude oil and low inventories at Cushing.

Traders said that same dynamic also pushed U.S. cash crude "roll" prices as high as $5 a barrel on Wednesday, in turn vaulting the front-month futures contract up by nearly $1 to a session high of $103.34. The "roll" period lasts for three days after the expiry of the front-month U.S. light crude contract. Traders and refiners adjust their crude slate during this period, and U.S. cash crude grades are priced against West Texas Intermediate (WTI) in Cushing.

Domestic crude stocks fell by 7.5 million barrels the previous week, the biggest draw since January, caused by a sharp increase in refinery activity. The American Petroleum Institute (API) data released on Tuesday showed that U.S. crude inventories fell 555,000 barrels last week to 374.7 million.

In Libya, oil production had fallen to around 450,000 barrels per day (bpd) as of Monday compared with 555,000 bpd on Thursday, a National Oil Company spokesman said. The drop comes as a twin suicide bombing at a Libyan army base in Benghazi killed at least four solders.

Still, more crude from the North African country could hit global markets with the Brega oil port expected to be operating within a "few days" after the government reached a deal with protesting security guards to end a blockade.

--By Reuters. For more information on commodities, please click here.

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