Oil settles higher on U.S. inventory drop, Russia gas cuts

© Reuters. FILE PHOTO: Sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. REUTERS/Angus Mordant

By Laura Sanicola

(Reuters) -Oil settled up more than $2 on Wednesday as a report of lower inventories in the United States and cuts in Russian gas flows to Europe offset concern about weaker demand and a U.S. interest rate hike.

U.S. crude oil stockpiles dropped 4.5 million barrels last week as exports surged to an all-time high due to U.S. crude's big discount to international benchmark Brent, the Energy Information Administration said.

Brent crude rose $2.22, or 2.1%, to $106.62 a barrel. U.S. West Texas Intermediate (WTI) crude gained $2.28, or 2.4%, to $97.26.

After a sharp drop in the last two weeks, U.S. gasoline demand rebounded by 8.5% week on week, according to the data.

"All talk about demand destruction stopped in its tracks in this report...the situation has changed dramatically in two weeks," said Bob Yawger, director of energy futures at Mizuho.

Oil also continued to climb after the U.S. Federal Reserve decided, as expected, to raise its benchmark overnight interest rate by three-quarters of a percentage point in an effort to cool the most intense inflation since the 1980s.

"From here, oil could ride the wave of some increased risk appetite for a few sessions especially if the dollar weakens further," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

Oil has soared in 2022, reaching a 14-year high of $139 a barrel in March after Russia's invasion of Ukraine added to supply worries and as demand recovered from the pandemic.

Since then, concerns of economic slowdown and rising interest rates have weighed, despite supply outages in Libya and Nigeria and cuts in Russian gas flows to Europe.

Gas flows through the Nord Stream 1 pipeline fell to a fifth of the pipeline's capacity on Wednesday, while Italy's Eni said it will receive lower volumes from Russia's Gazprom (MCX:GAZP).