SINGAPORE: Brent crude edged higher above $107 per barrel on Wednesday after an industry report showed US crude stocks declined last week, while increasing geopolitical risks in Ukraine helped put a floor under prices.
Crude inventories in the United States fell by 1.8 million barrels last week, industry group American Petroleum Institute (API) said, going against analysts' expectations for a 1.4-million-barrel gain.
Stocks at the Cushing, Oklahoma, delivery hub fell by 1.5 million barrels, the API said.
Investors now await confirmation of the API numbers from the US Department of Energy's Energy Information Administration, which releases its more closely watched data later on Wednesday. Brent crude rose 26 cents to $107.32 a barrel by 0352 GMT, after ending the previous session 66 cents lower. US crude gained 60 cents to $100.10 after the contract had settled 2 cents higher.
"A drop in inventories would put a floor under the recent weakness and would be a welcome relief for the bulls," said Michael McCarthy, chief strategist at CMC Markets in Sydney.
"I think most traders will be waiting for the official numbers tonight, but it's quite clear production is running well ahead of demand at the moment," he said.
The US dollar fell to around an eight-week low against the euro, another bullish factor for US oil and other commodities priced in the dollar as a weak greenback makes them cheaper in terms of other currencies.
Positive economic data also lent support, with the US trade deficit narrowing in March as exports rebounded to the second-highest level on record, indicating healthy demand for energy in the world's biggest oil consumer.
RISK OF CIVIL WAR
Heightening tensions in Ukraine and the possibility of the country slipping into civil war also helped lift oil markets, as traders weighed the risk of supply disruptions from Russia, the world's biggest oil producer.
Peace efforts in Ukraine seemed less likely with both sides in the conflict burying their dead as the country slides towards war, with supporters of Russia and of a united Ukraine accusing each other of tearing the country apart.
"Risks are to the upside for Brent in the next 24 to 48 hours, as we have a very strong support level around the $106.50-mark," said McCarthy.
"A significant troop movement on or over Ukraine's eastern border or indication that any other country is joining the conflict could spark a move to $109.50 to $110, although I don't expect a jump like that in one session," he said.
The Obama administration is working on new sanctions to impose on Russia if it ramps up aggression against Ukraine, such as preventing elections from taking place in much of the country or recognising another separatist referendum, US officials said on Tuesday.
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