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CNBC Oil extends gains as EIA reports US crude inventories fell by 6.2M barrels
 
Oil prices spiked on Wednesday after the government reported a surprisingly large drop in U.S. crude inventories and as an oil services workers strike in Norway threatened to cut North Sea output.

Brent crude futures were up 95 cents, or 2.1 percent at $46.83 per barrel by 10:33 a.m. ET (1433 GMT), while U.S. West Texas Intermediate (WTI) crude futures climbed $1.11, or 2.5 percent, to $45.16 a barrel.

U.S. commercial crude inventories fell by 6.2 million barrels to a total of 504.6 million barrels in the week ending Sept. 16, the U.S. Energy Information Administration reported.

Oil earlier took its cue from American Petroleum Institute (API) data which showed a 7.5 million barrel drop in U.S. crude inventories to 507.2 million barrels. Market participants had forecast an increase of 3.4 million barrels, according to a Reuters poll.

"Oil's got its own pretty positive drivers at the moment. The API surprise draw overnight is obviously leading to the question of whether we are going to see the same in the official inventory today," CMC Markets strategist Jasper Lawler said.
Adding to the upward price momentum was an oil service workers strike in Norway that could impact output from western Europe's biggest crude producing region.
Nevertheless, analysts said any gains could be tempered by caution ahead of the Federal Reserve's Federal Open Market Committee (FOMC) decision on interest rates later in the day.

Economists do not expect a change in rates but any indication from the Fed on the outlook for economic growth could have an impact on the dollar, and in turn, on oil.

"I don't expect the Fed to do anything and I don't expect a 'hawkish hold' either. But a bit of dollar weakness should support the backdrop for oil," CMC's Lawler said.

"Wednesday has become 'Big Wednesday' for oil traders, with not only the FOMC but also the EIA crude inventory numbers out. Should they (EIA) follow the unexpected drawdown like the API and we get no FOMC rate hike, oil bulls may well have reason to be cheering after a tough couple of weeks," Singapore-based brokerage Oanda said.

Key for the market is next week's meeting in Algeria between producers from the Organization of the Petroleum Exporting Countries (OPEC) and Russia to discuss measures to rein in oversupply, including an output freeze at current levels, but analysts said they did not expect significant results.
"Even with a freeze — which would still mean OPEC production is at record levels — we will still be in an oversupplied market," said Matt Stanley, a fuel broker at Freight Investor Services (FIS) in Dubai.

Oil prices initially fell in the previous session on pessimism that OPEC members and other major crude producers will reach an output freeze deal during Sept. 26-28 informal talks in Algeria. Saudi Arabia, Iran, Iraq, Nigeria and Libya, five of OPEC's largest oil exporters, have all raised or been trying to hike output in recent months even while talking of a freeze.

But at midday, short-covering and fresh buying emerged from traders who feared a rally if OPEC announce a deal in Algeria.

OPEC Secretary-General Mohammed Barkindo said he expected the potential freeze deal between OPEC and other producers to freeze output to last one year, longer than previously thought.
Source