U.S. crude oil inched higher on Wednesday after news of a U.S. government decision to permit exports of lightly refined oil, while Brent oil fell as fears of supply cuts from Iraq receded.
The domestic contract reached an intraday high of $107.50, reversing a two-day downward trend, after U.S. federal officials approved exports of condensate, an ultra-light oil, in a marginal relaxation of a 40-year ban on U.S. oil exports.
The rally lost some momentum after weaker-than-expected data from the U.S. Energy Information Administration (EIA) pointed to a potential dip in demand growth from the world's largest oil consumer and as traders awaited some clarification of what the condensate ruling would mean for the market.
Brent was down 70 cents under $114 a barrel as worries about sectarian violence reducing Iraqi exports seemed to fade. Brent hit a nine-month high of $115.71 last week on the fighting in Iraq. U.S. crude rose 47 cents to end at $106.50 a barrel. It had hit $107.50 in early trade as the market reacted to the news on U.S. condensate exports.
U.S. officials have told energy companies they can export a variety of condensate if it has been minimally refined, a U.S. Commerce Department spokesman confirmed to Reuters, although he said there had been "no change in policy" towards crude exports. Analysts say allowing more U.S. oil to be exported could help tighten the domestic market, pushing up prices.
A weekly EIA report showed that crude inventories rose by 1.74 million barrels to 388 million barrels, against a forecast for a 1.6 million barrel draw on stocks.
--By Reuters. For more information on commodities, please click here.