Oil prices jumped on Wednesday, with Brent rebounding from a four-year-low, as traders reacted to rumors of a pipeline blast in Saudi Arabia and bullish news on U.S. crude inventories.
Data from the Energy Information Administration (EIA) showed U.S. crude inventories rose 460,000 barrels last week, significantly less than the 2.2 million barrels predicted by analysts in a Reuters poll.
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A fire on Wednesday at an oil product pipeline carrying diesel north of the Saudi Arabian capital, Riyadh, had been extinguished, state news agency SPA and security and industry sources said. Oil prices surged earlier on unconfirmed talk of a crude pipeline explosion in Saudi Arabia.
"The Saudi rumor definitely shook things up, given that we're living in a world full of threats to oil supply. But we did calm down after that and step back and look at the bigger picture of what the inventories meant," said Phil Flynn, an analyst at Price Futures Group in Chicago.
Benchmark Brent oil closed up 13 cents at $82.95 a barrel. During a volatile morning, Brent first fell to a 2010 low of $81.63, when the dollar hit 4-1/2-year highs, then surged to a session peak of $84.45.
U.S. West Texas Intermediate (WTI) crude settled up $1.49 at $78.68 a barrel. It rose to $79.35 earlier, from an intraday low of $76.46.
The sharper rise in WTI versus Brent brought the price gap between the two oils <CL-LCO1=R> to below $4.50 a barrel, the smallest in two weeks.
"We could see a narrowing of the spread between WTI and Brent," said James L. Williams, energy economist at WTRG Economics in London, Arkansas.
Aside from the lower-than-expected build in U.S. crude stocks, the EIA report showed a drop in weekly stockpiles of gasoline and diesel, suggesting greater-than-anticipated demand for fuel in the world's largest oil consumer.
"The report was solidly bullish given the further declines in the refined product categories," said John Kilduff, partner at New York hedge fund Again Capital.
Oil prices were also backed by supportive U.S. employment data. The private sector in the United States created 230,000 jobs in October, more than the 220,000 forecast by economists, according to data from a payrolls processor.
In contrast, services sector growth in China weakened in October as new business cooled, according to a private survey coming just days after data showing sluggish factory growth in the world's second-largest economy.
Meanwhile, in the euro zone, business growth picked up less than expected in October despite much deeper price cutting and was only marginally higher than September's 10-month low, according to business surveys.
(By Barani Krishnan; Additional reporting by Robert Gibbons in New York and Sam Wilkin and Simon Falush in London.; Editing by Dale Hudson, Keiron Henderson, Bernadette Baum and Chris Reese)