LONDON: US crude oil rose by more than $1 a barrel ahead of the September contract's expiry on Wednesday and as crude stocks in the United States posted a sharp fall, while Brent bounced off a 14-month low to reach $102.
The U.S. Energy Information Administration said U.S. crude stocks fell by 4.5 million barrels last week, a much larger fall than anticipated, though stocks in the U.S. crude oil delivery hub of Cushing, Oklahoma, rose by 1.76 million barrels.
Gasoline stocks rose 585,000 barrels against expectations for a drop while distillate stocks fell 960,000 barrels, slightly more than forecast.
U.S. crude oil, also known as West Texas Intermediate or WTI, has been pressured by growing supplies of light-sweet oil from the North American shale boom, hitting a 7-month low of $94.26 on Tuesday.
But WTI for September delivery spiked on Wednesday, jumping by more than $1 a barrel as traders bought back short positions ahead of the contract's expiry later in the day.
It's premium over the contract for October delivery at one stage hit more than $3 a barrel, the largest price difference between the front and second month contracts since 2009.
"There has been some outsized volatility over the past several sessions," said John Kilduff, partner at Again Capital LLC in New York, saying traders were closely watching pipeline flows into and out of Cushing. "The expiring September (WTI) contract is starved for liquidity, so it is being pushed around."
Brent crude for delivery in October was up 68 cents at $102.24 a barrel by 1434 GMT. The contract fell to $101.07 on Tuesday, its lowest since June 26, 2013.
The U.S. crude contract for September delivery, which expires at the close of trading on Wednesday, rose $1.26 to $95.74 a barrel after falling sharply in the previous session.
More actively-traded October rose 69 cents to $93.55, with its discount to Brent around $9, the largest since June.
ATLANTIC GLUT
Brent firmed as traders said a 12 percent slide since June might be overdone.
The international benchmark, has fallen by more than $13 a barrel in the last two months as rising supplies of light-sweet crude created a glut in the Atlantic basin. Fears that violence in Iraq would slash output from OPEC's second largest producer have also not materialised.
Output from Libya has also been rising despite fighting between rival militias, with a tanker loading oil at Libya's largest port of Es Sider on Wednesday for the first time since the end of a year-long blockade.
On Tuesday, Libya said total oil production had risen to 562,000 barrels per day (bpd) from lows of barely 100,000 bpd earlier this year, though still well down on pre-blockade levels of near 1.4 million bpd.
"The returning oil supply from Libya is flooding a market that is already amply supplied," said Commerzbank analyst Carsten Fritsch
"There is thus growing pressure on the other OPEC producers to scale back their supply so that the oversupply does not become excessive."
While supply worries have eased threats to supplies in the Middle East are far from resolved.
Islamic State insurgents posted a video on Tuesday purportedly showing the beheading of U.S. journalist James Foley and images of another U.S. journalist whose life they said depended on how the United States acts in Iraq.
The posting of the video followed nearly two weeks of U.S. air strikes that have pounded militant positions and halted the advance of Islamic State fighters.
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