Oil prices climb on big drop in US crude stocks, Russia supply uncertainty

Oil prices rose in early trade on Wednesday after industry data showed US crude stockpiles fell more sharply than expected last week, highlighting supply tightness ahead of a looming European Union ban and G7 price cap on Russian oil.

Brent crude futures gained 25 cents, or 0.3%, to $88.61 a barrel at 0101 GMT, while US West Texas Intermediate (WTI) crude futures rose 35 cents, or 0.4%, to $81.30 a barrel.

Both benchmark contracts rose about 1% in the previous session as the United Arab Emirates, Kuwait, Iraq and Algeria reinforced comments from Saudi Arabia's energy minister that the Organization of the Petroleum Exporting Countries (OPEC) and allies, together called OPEC+, were not considering boosting oil output. OPEC+ next meets to review output on 4 December.

Uncertainty over how Russia will respond to plans by the Group of Seven (G7) nations to cap Russian oil prices further supported the market, analysts said.

The price cap, yet to be announced but due to be in place from 5 December, will probably be adjusted a few times a year, a senior US Treasury official said on Tuesday.

"Traders closely monitor Russia's exports and will look for how much they might trim the nation's foreign sales in retaliation, which could be a bullish fillip for oil prices," SPI Asset Management managing partner Stephen Innes said in a note to clients.

Buoying prices on Wednesday, US crude inventories fell by about 4.8 million barrels for the week ended 18 November, data from the American Petroleum Institute showed, according to market sources.

Analysts polled by Reuters on average had expected a 1.1 million barrel drawdown in crude inventories. 

However, on a bearish note, API data showed distillate stocks, which include heating oil and jet fuel, rose by about 1.1 million barrels compared with analysts' expectations for a drop of 600,000 barrels.