Oil rises 4.5% to 7-week high on US crude supply drop, Gulf of Mexico storm

A Petrobras oil platform floats in the Atlantic Ocean near Guanabara Bay in Rio de Janeiro.
Getty Images

Oil prices gained more than 4% a barrel on Wednesday after U.S. crude inventories shrank more than expected and as major producers evacuated rigs in the Gulf of Mexico ahead of an expected storm.

Brent crude futures were up $2.88, or 4.49%, to $67.04 a barrel  U.S. West Texas Intermediate crude futures climbed $2.60, or 4.5%, to $60.43 a barrel.

U.S. crude stocks fell 9.5 million barrels in the week to July 5, more than triple the 3.1 million-barrel draw analysts had expected as refineries ramped up output, the Energy Information Administration (EIA) said. 

"Oil prices are supported not only by the greater than expected draw in the EIA crude oil inventories, but with the evacuation of several platforms in the Gulf of Mexico in advance of a tropical storm, that will curb production," said Andrew Lipow, president of Lipow Oil Associates.

Major oil firms began evacuating and halting production in the Gulf of Mexico after weather forecasts warned a tropical disturbance might become a storm on Wednesday or Thursday.

Chevron Corp, Royal Dutch Shell, BP, Anadarko Petroleum and BHP Group were in the process of removing staff from 15 offshore platforms. Exxon Mobil said it was monitoring the weather to determine if its facilities might be affected.

The Gulf of Mexico is home to 17% of U.S. crude oil output which stands at around 12 million barrels per day (bpd).

The U.S. and global benchmarks have gained this year as the Organization of the Petroleum Exporting Countries (OPEC) and big producers such as Russia have curbed output to bolster prices.

The alliance, known as OPEC+, agreed last week to extend their supply-cutting deal until March 2020.

Tensions around Iran's nuclear program and recent incidents involving oil tankers in the Gulf have also supported prices.

"The ongoing geopolitical tensions between the United States and Iran continue to add a still unquantifiable level of support," said Saxo Bank commodity strategist Ole Hansen.

A U.S. general said Washington hoped to enlist allies over the next two weeks or so in a military coalition to safeguard strategic waters off Iran and Yemen, where the United States blames Iran and Iran-aligned fighters for attacks.

Iran has long threatened to close the Strait of Hormuz, through which almost a fifth of the world's oil passes, if it was unable to export its oil due to U.S. sanctions.