A gas flare burns at Russian oil refinery, operated by OAO Lukoil. in Russia. Picture: BLOOMBERG
A gas flare burns at Russian oil refinery, operated by OAO Lukoil. in Russia. Picture: BLOOMBERG

New York — Oil futures pared losses briefly on Wednesday after US crude inventories fell the most in nearly two years, before trading lower in a volatile session in which supplies from Libya and Iran were expected to increase.

US crude stockpiles decreased by nearly 13-million barrels last week, while petrol inventories also fell and distillate stockpiles rose, the Energy Information Administration (EIA) said on Wednesday. The decrease was the biggest since September 2 2016. Crude benchmarks shrugged off the draw.

"In spite of the extraordinary draw in crude oil inventories, the market is under pressure after refiners produced a record amount of petrol this week and in conjunction with a greater-than-expected build in distillate inventories," said Andrew Lipow, president at Lipow Oil Associates in Houston.

Brent crude fell $1.84 to $77.02 a barrel by 2.46pm GMT, after touching $77.84 a barrel after the figures were released. Brent earlier touched a session low of $76.76 a barrel. US light crude, supported by the tight North American market, was down 88c at $73.23 a barrel.

The spectre of tariffs on a further $200bn worth of Chinese goods sent commodities lower, along with stock markets, as tension between the two intensified.

"Trade concerns have bitten today," said Michael McCarthy, chief markets strategist at CMC Markets. "If these tariffs are introduced there will be an impact on global growth and demand."

The price fall was aided by news Tripoli-based National Oil Corporation (NOC) had lifted a force majeure on four Libyan oil ports, saying production and exports from the terminals would "return to normal levels in the next few hours". Libyan oil production fell to 527,000 barrels per day (bpd) from a high of 1.28-million bpd in February following the port closures, the NOC said on Monday.

"The lifting of force majeure at all the Libyan ports will certainly come as relief from a supply perspective, but it remains to be seen how quickly exports can return to normal," Harry Tchilinguirian, head of oil strategy at BNP Paribas, told Reuters Global Oil Forum.

Adding to the bearish mood were signs of a possible relaxation of US sanctions on Iranian crude exports. US secretary of state Mike Pompeo said on Tuesday that Washington would consider requests from some countries to be exempt from sanctions due to go into effect in November to prevent Iran from exporting oil.

Washington had previously said countries must halt all imports of Iranian oil from November 4 or face US financial restrictions, with no exemptions. The US pulled out of a multinational deal in May to lift sanctions against Iran in return for curbs to Tehran’s nuclear programme.

The prospect of sanctions on oil exports from Iran, the world’s fifth-biggest oil producer, has helped push up oil prices in recent weeks with both crude contracts trading near three-and-a-half-year highs. Supply to the US market has also been squeezed by the loss of some Canadian oil production.