(Bloomberg) - Oil erased the two-day plunge that followed Britain’s vote to leave the European Union after U.S. crude inventories dropped for a sixth week while the dollar retreated against its peers.
Futures advanced 4.2 percent in New York, extending Tuesday’s 3.3 percent increase. Crude supplies declined 4.05 million barrels last week, the Energy Information Administration said. The dollar fell amid speculation policy makers will take action to limit damage from the U.K.’s secession from the EU. A weaker dollar boosts investor demand for commodities.
Crude has climbed more than 80 percent from the lowest level in 12 years in February as global supply disruptions and falling U.S. output reduce a surplus. Even as the world waits to see how the June 23 Brexit referendum plays out, oil demand is expected to continue growing as U.S. vacationers take to the road. Futures dropped 7.5 percent in the two days following the vote, the biggest decline since February.
"We should continue to see inventory draws though the end of the year," said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. "The cutback in drilling activity is resulting in a drop in production. The draws need to continue so we can eat into these huge stockpiles."
West Texas Intermediate for August delivery climbed $2.03 to close at $49.88 a barrel on the New York Mercantile Exchange. It’s the biggest gain since April 12. Total volume traded was about 5 percent below the 100-day average.
Brent for August settlement rose $2.03, or 4.2 percent, to $50.61 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a 73-cent premium to WTI.
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The Bloomberg Dollar Index, which tracks the currency against major peers, fell as much as 0.6 percent, while the Bloomberg Commodity Index, a gauge of 22 raw materials, increased as much as 1.2 percent.
U.S. crude inventories dropped to 526.6 million barrels, the lowest since the week ended March 11, EIA data show. Supplies climbed to an 87-year high of 543.4 million barrels in the last week of April.
Crude production in the U.S. slipped by 55,000 barrels a day to 8.62 million last week, the lowest since September 2014, the report showed. The number of active oil rigs in the U.S. fell by 7 to 330 last week, Baker Hughes Inc. data show. Explorers have idled more than 1,000 oil rigs since the start of last year.
Refineries bolstered operating rates by 1.7 percentage points to 93 percent of capacity, the highest rate since December. U.S. refiners typically increase utilization in June as they maximize gasoline output for the summer peak driving season.
Gasoline stockpiles along the East Coast, known as PADD 1, surged 5.6 percent to a record 72.5 million barrels. Nationwide supplies climbed 0.6 percent to 239 million barrels.
U.S. gasoline consumption fuel averaged 9.71 million barrels a day in the four weeks ended June 24, the highest seasonal level in at least a decade. American motorists are projected to hit the road in record numbers during the July 4 holiday weekend, according to AAA.
"Gasoline demand is strong and production is right there with it," said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. "Having a build in gasoline in the week before the July 4 holiday along with the still seriously over-supplied crude market will limit price gains."
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