US Oil Settles Above $106 as Stockpiles Drop Sharply

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Data showing a surprisingly steep drawdown in U.S. stockpiles powered U.S. benchmark crude above $106 per barrel Wednesday—its highest since March 2012—en route to a 3 percent gain on the day.

Despite new worries about China's growth, crude broke free from the economic concerns shackling price gains. Oil went on a tear after figures from the Energy Information Administration showed that inventories had plunge by nearly 10 million barrels last week.

The data confirmed American Petroleum Institute figures released Tuesday that showed a drop of 9 million barrels and reflected an increasingly tight domestic energy market.

With China struggling and Europe still on its heels, analysts are doubtful that global demand will continue to justify crude prices above $100. Nonetheless, West Texas Intermediate has been surging for weeks, with the contract up nearly 30 percent over the last year and narrowed its spread with Brent to less than $3. The last time WTI traded above Brent was before the U.S. recession.

The stockpile data combined with the Federal Reserve's minutes, sending crude on a torrid rally. U.S. crude settled up by nearly $3, at $106.52, its strongest level in 16 months and its largest one-day gain since May 2. WTI has now surged more than 11 percent in the last 10 sessions, its steepest rally since July 2012.

Meanwhile, gains in Brent crude futures were comparatively tame, rising 50 cents on the day to trade above $108.

Economy, Global Worries Abound

WTI's gains are "likely driven by faster economic growth in the country and by rising consumer confidence leading to increase automobile use," said Andrew Busch, an analyst and founder of The Busch Update. "What's truly amazing is that the WTI-Brent spread has narrowed to $3.25 from a high of $19.90 on March 4 ... despite the political upheaval in Egypt."

Markets continued their upward march after the release of the Fed minutes, in which policymakers expressed concern about how well the central bank was conveying its intentions to jittery investors.

Although questions linger about whether and when the Fed will begin curtailing its bond-buying, traders appeared encouraged that such a move was not imminent. According to many economists, the Fed stimulus helps to inflate asset prices, including oil.

Still, the need for continued central bank support underscored the fragility of the global recovery. Worries are mounting about China—the world's second-largest economy and energy consumer.

Dour Chinese export figures Wednesday boded ill for both the nation's growth figures, which are due out over the weekend, and Brent's ability to rally much more.

Middle East tensions remained on full boil, helping to put more upward pressure on oil prices. Egypt's ongoing conflict and concerns about global oil supplies helped counterbalance fears of waning demand.

"It is important to emphasize that the recent strengthening in the WTI-Brent differential is unrelated to the developments in Egypt, but rather a reflection of an anticipation of inventory draws in the [United States] on the back of increased pipeline and refinery operations," Goldman Sachs wrote in a recent note.

— By CNBC's Javier E. David; Giovanny Moreno contributed to this article.