NEW YORK: Oil prices rose 2% on Wednesday, after a large unexpected drawdown in U.S. crude inventories and a warning from the Saudi energy minister that raised the prospect of further OPEC+ production cuts.
Brent crude futures rose $1.52, or 2%, to settle at $78.36 a barrel. U.S. West Texas Intermediate crude (WTI) gained $1.43, or 2%, to $74.34.
U.S. crude inventories posted a massive surprise weekly drawdown of 12.5 million barrels to 455.2 million barrels, the Energy Information Administration said, as imports declined. Analysts had expected an 800,000-barrel rise.
U.S. gasoline stocks dropped by 2.1 million barrels in the week to 216.3 million barrels, the EIA said, while distillate stockpiles fell by 600,000 barrels to 105.7 million barrels.
The U.S. Memorial Day holiday on May 29 marks the beginning of the peak summer travel season and higher fuel demand.
"Refiners are absolutely going max out with refinery runs right now, trying to keep up with demand," said Phil Flynn, an analyst at Price Futures Group.
"Oil prices have been so focused on the debt ceiling and interest rates, but really they haven't focused on the supply and demand side which has tightened in the last couple of weeks."
Federal Reserve officials "generally agreed" last month that the need for further interest rate increases "had become less certain," with several saying that the quarter-percentage-point hike they approved might be the last, according to minutes of the May 2-3 meeting released on Wednesday.
Meanwhile, Saudi Arabia's energy minister said short-sellers betting oil prices will fall should "watch out" for pain, comments some investors took as a signal that OPEC+, the Organization of Petroleum Exporting Countries and allies including Russia, could consider further output cuts at a meeting on June 4.
"Oil prices are trading higher ... buoyed by the latest short-seller warning from Saudi Arabia," said OANDA senior market analyst Craig Erlam.
"(But) if past experience is anything to go by, traders may be tempted to call his bluff."
Weighing on broader markets, there were no signs of progress in U.S. debt ceiling talks as the deadline ticked closer to raise the federal government's borrowing limit or risk default.
Negotiators for Democratic President Joe Biden and top congressional Republican Kevin McCarthy reconvened at the White House to try to close a deal.
Oil price gains were limited by news that Britain's stubbornly high inflation rate fell by less than expected last month, according to official data that raised the chances of more interest rate hikes. (Reporting by Stephanie Kelly in New York; additional reporting by Rowena Edwards and Shadia Nasralla in London, and Emily Chow in Singapore Editing by Jason Neely, Marguerita Choy and David Gregorio)