Oil prices rose about 3% to a seven-week high on Wednesday as a surprise drop in weekly US crude inventories heightened market concerns about tighter supplies amid export problems in Iraq, Venezuela, and Russia.

Brent crude futures rose $1.68, or 2.5%, to $69.31 a barrel, while US West Texas Intermediate (WTI) crude futures rose $1.58, or 2.5%, to $64.99. These were the highest closes for Brent since August 1 and WTI since September 2.

US crude inventories fell a surprise 607,000 barrels last week, according to the Energy Information Administration (EIA). The figure compared with analysts' forecasts in a Reuters poll for a 235,000-barrel increase in production, but was smaller than market expectations of 3.8 million barrels, according to market sources cited by the American Petroleum Institute trade group in its figures on Tuesday.

"This report is quite encouraging considering the overall production decline," said John Kilduff, a partner at Again Capital, referring to the decline in crude, distillate, and gasoline inventories in the EIA report. Oil prices also received support from news that the Ukrainian military attacked two oil pumping stations overnight in Russia's Volgograd region. A state of emergency was declared in the Russian city of Novorossiisk, which is Russia's main Black Sea port and has a major oil and grain export terminal.

"The focus has recently shifted back to Eastern Europe and the possibility of new sanctions against Russia," said PVM Oil Associates analyst Tamas Varga. Russia is experiencing shortages of certain types of fuel as Ukrainian drone attacks have reduced refinery operations, according to traders and retailers, after Ukraine stepped up drone attacks on energy infrastructure to reduce Moscow's export revenues.

The Russian Finance Ministry has proposed raising the value-added tax rate to 22% from 20% in 2026 to fund military spending and help curb a ballooning budget deficit, which will be the fifth year of the war in Ukraine.

Russia was the second-largest crude oil producer in 2024 after the US and is a member of OPEC+, which includes OPEC and its allies. US President Donald Trump has said he is confident Ukraine can reclaim all territory seized by Russia, marking a sudden shift in rhetoric in Ukraine's favor. The Trump administration earlier this month urged European Union countries to cut off Russian oil and gas supplies more quickly. (alg)

Source: Reuters