US oil rises 1.6% after US crude stocks fall by 5.3 million barrels

The oil price rallied towards its highest level this year on Wednesday, after a drop in U.S. crude inventories and as the prospect of the loss of Iranian supply added to concerns over the delicate balance between consumption and production.

Brent crude futures were last up 59 cents on the day at $79.65 a barrel and briefly broke above $80. U.S. crude futures rose $1.12, or 1.6 percent, to settle at $70.37 a barrel.

The Energy Information Administration said Wednesday that U.S. crude oil inventories dropped by 5.3 million barrels last week.

"We think oil market fundamentals are increasingly supportive of crude prices, at least at current levels," said Gordon Gray, HSBC's global head of oil and gas equity research.

"While we aren't explicitly forecasting Brent to rise to $100 a barrel, we see real risks of this happening. The fact that much higher supply is already needed from the likes of Saudi Arabia - and the low levels of spare capacity remaining - leave the global system highly vulnerable to any further significant outage."

Outside the United States, traders have been focusing on the impact of U.S. sanctions against Iran that will target oil exports from November.

"Iran is increasingly becoming the preoccupation of the crude market. The last couple of weeks have seen the expected squeeze on Iranian crude flows taking shape, with overall outflows down markedly," consultant JBC Energy said.

'Fragile' Market

Russian energy minister Alexander Novak on Wednesday warned of the impact of U.S. sanctions against Iran.

"This is a huge uncertainty on the market how countries, which buy almost 2 million barrels per day (bpd) of Iranian oil, will act. The situation should be closely watched, the right decisions should be taken," he said.

Novak said global oil markets were "fragile" due to geopolitical risks and supply disruptions.

The Organization of the Petroleum Exporting Countries cut its forecast for oil demand growth in 2019 in its monthly report and said rising challenges in some emerging and developing countries could negatively impact global economic growth.

OPEC said it expected demand growth of 1.41 million bpd in 2019, a 20,000-bpd downgrade from its previous forecast.

Oil traders were also watching the progress of category 4 Hurricane Florence which is expected to make landfall by Friday.

Crude output will not be affected by the "monster" storm, but the evacuation of more than a million residents, as well as businesses, has prompted a near-term spike in fuel demand.