Oil rises as US stockpiles drop to three-year low

Oil prices rose more than 1 percent on Wednesday, on track for their third straight winning day as US crude inventories dropped to their lowest in nearly three years, overshadowing worries about the eurozone debt crisis. US government data showed domestic crude stocks fell 10.6 million barrels last week to 323.6 million barrels, the lowest since the week to December 26, 2008, after logging the biggest weekly inventory drawdown in nearly 11 years.
"Overall, the (oil stocks) data is mildly bullish and I expect we will continue the trend for the next week," said Mark Waggoner, president at Excel Futures. "I wouldn't be surprised if NYMEX crude hits $100 as we end the week." In London, ICE February Brent crude rose $1.18 to $107.91 a barrel by 2:05 pm EST (1905 GMT), after posting the biggest one-day percentage gain since mid-October on Tuesday to settle up by $3.09.
US February crude added $1.72 at $98.94, after ending on Tuesday with the biggest one-day percentage rise since October 27. Data from the US Energy Information Administration also showed that distillate stocks, which include heating oil and diesel, also fell last week, adding to the market's bullish tone.
Brent's premium against US crude narrowed slightly to near $9, after closing at $9.49 on Tuesday. Pre-holiday trading volumes were light. Brent crude dealings were off 38 percent from their 30-day average while US crude trades were down 50 percent from their 30-day average, according to Reuters data.
Earlier, an offer by the European Central Bank of limit-free and ultra-cheap three-year loans lifted sentiment across financial markets after banks took a greater-than-expected 489 billion euros ($638 billion), but optimism subsided as investors weighed the pressures facing European banks. Data from Italy showed Europe's third-largest economy had tipped into recession and analysts predicted a gloomier fourth quarter and further difficulties onwards.
Italy's disappointing growth contrasted with the outlook for Spain, which appeared to have brightened after its short-term financial costs more than halved on Tuesday. Worries about the Italian economy countered cheers on Tuesday over the sharp rise in business sentiment this month in Germany, Europe's largest economy, even as growth in neighbouring countries were slumping.
Oil prices rose earlier this week on concerns of a supply disruption in Kazakhstan, the Central Asian crude producer, where labour-related protests had sparked violence. Supply risks amid tensions over Iran's dispute with western governments regarding its nuclear program have also kept oil prices elevated. Investors were also weighing developments in Iraq, whose foreign minister, Hosyiyar Zebari, warned of foreign meddling in the country's affairs if its leaders failed to quickly resolve a political crisis between the Shia-led government and Sunni rivals.