Oil rallied for a second straight day on Wednesday as U.S. government data confirmed a big weekly drawdown in domestic crude stockpiles, although profit-taking by players who had bet on the draw pulled the market back from its highs.
The U.S. Energy Information Administration said crude oil inventories fell by 6.8 million barrels last week, four times more than the 1.7 million barrels forecast by analysts in a Reuters poll. Industry group American Petroleum Institute had raised market expectations late on Tuesday when it estimated a draw of 6.7 million barrels.
Oil futures rose 3 percent on Tuesday in anticipation of the draws.
"Obviously, a 6.8 million draw should get the market's reaction," said Jim Williams, energy economist at WTRG Economics in London, Arkansas.
"But with yesterday's move, I'm not sure how much more of an upside we have today," he said, adding the market could slip into the negative as more players who went long before the EIA data take profits.
The stockpile drop was the most in a week since July and came as refining demand for crude rose amid higher consumption of gasoline, although inventories for distillates, which include diesel and heating oil, rose.
"The distillate category was a bit of a drag on the inventory and demand front, but not enough to diminish the overall strength of the report," John Kilduff, partner at New York energy hedge fund Again Capital.
Inventories at the Cushing, Oklahoma, delivery hub for U.S. crude fell by about 1 million barrels, offsetting worries that storage tanks there were close to hitting capacity.
On Tuesday, the EIA said it expected a drop of 160,000 barrels per day (bpd) in U.S. oil output next year, compared with its previous forecast for a rise.
Even so, stockpiles are up 20 percent year-on-year as a global glut in crude weighs.
"The draw numbers are bullish. That's the short takeaway," said Williams of WTRG. "But medium and long-term, we still need to be rid another 85 million barrels of crude that we didn't have a year ago. I think it will be a summer of volatility."