Oil extends gains on smaller-than-expected US inventory build

Oil field workers with Wisco work on a pump jack in North Dakota, the United States, on November 6, 2013.
Ken Cedeno | Corbis News | Getty Images

Oil prices turned positive on Wednesday, reversing two days of losses, following a smaller-than-expected build in US inventories. Prices also moved higher as Iran-related tensions escalated but receding hopes for a quick solution to the U.S.-China trade war which has dented global growth dragged on prices.

West Texas Intermediate crude futures gained $1.04, or 1.9%, to trade at $56.25 a barrel. Brent crude futures were at $61.97 a barrel, up $1.06, or 1.7%.

Crude inventories in the United States increased by 1.4 million barrels from the prior week, the U.S. Energy Information Administration said on Wednesday.

The U.S. aircraft carrier strike group Abraham Lincoln on Tuesday sailed through the vital Strait of Hormuz through which a fifth of the world's oil flows as leaders in Iran blamed days of protests over fuel price hikes on foreign enemies.

Tensions in the Gulf have risen since attacks on oil tankers this summer, including off the coast of the United Arab Emirates, and a major attack on key Saudi energy plants which briefly crippled from the world's top oil exporter.

Iran's President Hassan Rouhani on Wednesday claimed victory over protests which have left scores reported dead.

"These events contribute to a sense of increasing tensions in the Middle East and explain why we have an uptick in the oil price today," said SEB chief commodities analyst Bjarne Schieldrop.

"It's all part of a continuous row of incidents revolving around Saudi Arabia and Iran that have still not been resolved."

Meanwhile crude inventories in the United States rose by 6 million barrels last week to 445.9 million, industry group the American Petroleum Institute said on Tuesday.

"The API data ... showed U.S. inventories posted a rather robust increase last week, which if confirmed by the EIA report, could see oil prices continue to slide," said Edward Moya, an analyst at brokerage OANDA.

U.S. crude demand has slowed during a protracted trade war with China. Hopes for an end to the dispute in the signing of a so-called Phase One agreement have dimmed amid disagreements over the removal of tariffs.

China on Wednesday also condemned legislation passed by the U.S. Senate aimed at protecting human rights in Hong Kong amid a crackdown on a pro-democracy protest movement.

"(The) fear here is still the trade talks with a lot of pessimism starting to filter through," said Stephen Innes, market strategist at AxiTrader. "If we don't get a significant roll-back on tariffs, that's quite negative."