By Ambar Warrick
Investing.com-- Oil prices fell slightly on Wednesday, but hovered near two-week highs as signs of improving U.S. demand offset weak economic readings, while the prospect of supply cuts by Saudi Arabia kept the outlook upbeat.
London-traded Brent oil futures held around $100 a barrel, while West Texas Intermediate futures, the U.S. crude benchmark, fell 0.2% to $93.57 a barrel by 20:14 ET (00:14 GMT).
Data from the American Petroleum Institute showed that U.S. crude inventories fell by 5.6 million barrels in the week to Aug. 19, far more than expectations for a drawdown of 450,000 barrels.
Official data, which is due later on Wednesday, is expected to show a 933,000 barrel drawdown. U.S. crude inventories fell by over 7 million barrels in the week to August 12.
The shrinking inventories, coupled with recent data showing that U.S. crude inventory in the Strategic Petroleum Reserve hit a 35-year low, indicates that U.S. oil demand is recovering from a lull seen over the past few months.
A dip in gas prices from record highs appears to be the biggest driver of crude demand in the country.
But conversely, PMI data on Tuesday showed that U.S. private sector activity sank to its weakest level in 27 months amid continued pressure from inflation and rising interest rates. A slowdown in U.S. economic activity, especially as interest rates rise further, could weigh on crude demand in 2022.
Still, oil prices rallied nearly 4% on Tuesday after Saudi Arabia- the world’s largest producer- flagged potential supply cuts to support crude prices.
The move also comes amid reports of progress in the Iran Nuclear deal, the signing of which is expected to lift several western sanctions on Tehran, and release over 1 million barrels per day of supply into the market.
Concerns over the Iran deal caused wild swings in crude markets over the past few weeks, with traders fearing a potential supply glut arising from the deal.