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US crude surges 2.6% on EIA data to settle at $51.60, best close since July 2015

Oil prices jumped as much as 3 percent on Wednesday, with U.S. crude hitting 15-month highs after the government reported a surprisingly large drop in domestic inventories for the sixth week out of seven.

Benchmark Brent crude futures were up 89 cents, or 1.7 percent, at $52.57 a barrel by 2:38 p.m. ET (1838 GMT), having earlier risen as high as $53.14.

U.S. West Texas Intermediate (WTI) crude oil futures settled up $1.31, or 2.6 percent, at $51.60 a barrel, the best settle since July 14, 2015. They touched $51.93 at the peak of the session, the highest level since July 16, 2015, when WTI hit $52.17.

The November contract expires at the end of trading on Thursday. The December contract breached the $52 level during trade on Wednesday.

U.S. commercial crude inventories fell by 5.2 million barrels to a total of 468.7 million barrels in the week through Oct. 14, the Energy Information Administration reported. Analysts polled by Reuters had expected the EIA to report a crude build of 2.7 million barrels.

Oil rigs, field
Viktor Drachev | TASS | Getty Images

It is common for crude stocks to build at this time of year as refineries go into maintenance, turning out less gasoline and other fuel products. Refinery runs have fallen since the start of September, reaching 88 percent of capacity last week.

The EIA data also cited lower crude imports as a factor for the inventory drop. U.S. crude imports slid by 912,000 barrels per day last week to 6.47 million bpd, the lowest since November 2015.

"The report was bullish due to the large drop in crude oil inventories," said John Kilduff, partner at New York energy hedge fund Again Capital.

Still, a surprisingly large build of 2.5 million barrels in gasoline stocks that contrasted with analysts' expectations for a 1.3 million-barrel drop meant a less rosy outlook for oil for some.

"So, while the headline number was bullish, we wouldn't call it extremely bullish given the large gasoline build," said Tariq Zahir, a trader in timespreads of WTI at Tyche Capital Advisors in New York.

Also supporting oil in early trade was evidence of declining production in China, and optimism that the Organization of the Petroleum Exporting Countries will secure an output cut at its meeting next month.

Saudi Energy Minister Khalid al-Falih said on Wednesday that oil markets were at the end of a considerable downturn as fundamentals were improving and supply and demand were rebalancing.

He called on non-OPEC producers to help stabilize the market saying their role was as critical as the role of OPEC members. Russian Energy Minister Alexander Novak said on Wednesday he was planning to meet Falih this weekend to discuss coordination of possible actions.

As the world's largest exporters prepare to discuss the first cut in output in eight years next month, the pressure of persistently low oil prices on higher-cost producers is becoming apparent.

China's crude output fell 9.8 percent to 3.89 million barrels per day (bpd), near its lowest in six years in the second-biggest year-on-year decline on record.

Adding to the support to crude prices from lower output, refining rates in the world's largest commodities consumer rose last month.

China processed 43.8 million tons (10.7 million bpd) of crude oil in September, up 2.4 percent from a year ago.

Mohammed Barkindo, secretary general of the OPEC, gave the market a boost by saying he is confident about the prospects of a planned production cut following an OPEC meeting on Nov. 30.

"I am optimistic we will have a decision," he said.

OPEC said it plans to reduce production to 32.5 million to 33 million bpd, compared with record output of 33.6 million bpd in September.