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Oil rises further above $50 on API report, braced for Brexit volatility

[June 22, 2016] By Alex Lawler

LONDON (Reuters) - Oil rose further above $50 a barrel on Wednesday supported by an industry report that showed a large drop in U.S. crude inventories and a boost in investor risk appetite ahead of Britain's referendum on EU membership.

U.S. crude inventories fell by 5.2 million barrels, the American Petroleum Institute (API) said on Tuesday, far more than analysts expected. Official stocks data is due later on Wednesday from the U.S. Department of Energy (DOE).

"What we have is basically the leftovers of the reaction from the API report," Petromatrix oil analyst Olivier Jakob said of the oil price rise. "There is a risk that the DOE will not show a stock draw of the same magnitude."

Brent crude was up 34 cents at $50.96 a barrel at 1103 GMT. U.S. crude climbed 44 cents to $50.29, marking its first rise above $50 since June 10.

Analysts at Commerzbank echoed the scepticism as to whether the DOE will report a similar inventory drop in its figures due at 1430 GMT. The API's numbers are based on voluntary reporting by its members.

"As far as inventory trends are concerned, the figures have tallied in only three of the last eight weeks," said Carsten Fritsch of Commerzbank.

Oil also benefited from a boost in risk appetite in global markets as investors were cautiously optimistic about a "Remain" vote in the EU referendum on Thursday.

"Though some may be forgiven for thinking that the outcome is a foregone conclusion, the inconsistency between the betting money and the polls mean that conditions are ripe for a fresh bout of volatility," said Stephen Brennock of oil brokers PVM.

Riskier markets also drew support from Federal Reserve Chair Janet Yellen's cautious comments on the U.S. economy the previous day, in which she virtually ruled out a July rate rise.

The dollar fell against a basket of currencies. A weaker dollar makes oil cheaper for other currency holders and tends to support crude prices.

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A driver pumps petrol into his car at a petrol station in Brussels March 8, 2011. REUTERS/Yves Herman

The drop in U.S. crude inventories, if confirmed by the DOE figures, would be the fifth straight weekly decline and adds to signs that a supply glut which has halved oil prices in the last two years is easing.

Other signs include lower U.S. shale oil production due to reduced investment in the wake of the price collapse, which is underpinning a wider drop in non-OPEC supply in 2016.

A spike in unplanned supply losses has also supported prices this year. Nigerian militants who have been sabotaging the country's crude exports denied on Tuesday they had agreed to a ceasefire, lending support to prices.

(Additional reporting by Aaron Sheldrick; editing by Louise Heavens and David Clarke)

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