LONDON: Oil surged on Wednesday on a sharp decline in crude stockpiles in top consumer the United States and political unrest in Egypt that could destabilise the Middle East and lead to supply disruptions.
US crude rose to a 14-month high above $100 a barrel, closing its gap with Brent, after the American Petroleum Institute reported a 9.4 million barrel drop in US crude stocks. Analysts had expected a draw of 2.3 million barrels.
Both benchmarks gained for a third straight day, drawing support from rising tension in the Middle East. Egypt's President Mohamed Mursi rejected an army ultimatum to step down. And protesters in Libya have shut several oilfields.
US oil was up $1.33 at $100.93 per barrel by 1053 GMT, after rising to as high as $102.18 in earlier trade. Brent rose 85 cents to $104.85.
"The oil market is ignoring slightly weaker share prices and the stronger dollar as it has its own, very bullish issues to deal with," said Tamas Varga, oil analyst at brokers PVM Oil Associates.
"These include the crisis in Egypt (and) US stock draws."
Investors will seek confirmation of the significant decline in US crude inventories later on Wednesday when the US Energy Information Administration releases its data.
Brent's premium to West Texas Intermediate crude <CL-LCO1=R> sank to a low of $3.09, the weakest since December 2010. And the spread may narrow further on a drop in US inventories.
Projects aimed at shifting crude from the over-supplied hub of Cushing, Oklahoma, to refineries in the Gulf Coast will lower transport costs and shrink the price gap between Brent and WTI.
Amrita Sen of Energy Aspect sees US crude overtaking Brent, which if it happened would be the first time in nearly three years.
"We expect WTI to go above Brent in the fourth quarter due to the start-up of new pipelines such as Keystone XL South and the tightening of WTI specs," said Sen, who had predicted the spread would narrow sharply in the third quarter.
"I think weaker European margins have weighed on Brent and, of course, very strong US margins supported WTI."
But a slew of weak data from China, which has stoked concern over the demand outlook from the world's No.2 oil consumer, may keep a lid on prices.
A survey showed that growth in China's services sector sagged to its weakest pace in nine months in June. This follows reports that showed China's manufacturing growth plumbed multi-month lows in June as foreign and domestic demand waned.
"Recent indicators have pointed to a slowing Chinese economy, driven by softer industrial and export performance, and these should result in lower oil import growth," said analysts at the National Australian Bank.
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