Oil price jumps in response to surprise drop in US stocks

The oil price jumped more than 2 per cent yesterday after it emerged that stocks in the United States, the world's largest market, had fallen at their fastest rate for 18 months.

The oil price jumped more than 2 per cent yesterday after it emerged that stocks in the United States, the world's largest market, had fallen at their fastest rate for 18 months.

The US Department of Energy said crude oil inventories plummeted by 10.6 million barrels last week, the largest drop since the last week of 1998.

The report came just hours after the American Petroleum Institute stunned the market with its own figures showing stocks fell by nine million barrels last week. Analysts had expected a rise of one million.

The API said the decline in stocks was the steepest since 28 January while imports fell nearly 20 per cent to eight million barrels last week.

Brent crude for delivery next month - an industry benchmark price - rose as much as 64 cents or 2.4 per cent to $27.78 a barrel in London.

Lawrence Eagles, an analyst with brokers GNI, said prices had been falling in recent weeks as traders stayed out of the market in anticipation of further falls.

"This has shocked the market back into reality," he said, adding that it did not reflect a dire shortage of crude oil.

Traders had been waiting for Saudi Arabia to confirm industry rumours that it was planning a unilateral increase of 500,000 barrels a day to bring the price down to its target of £25 a barrel.

But yesterday Opec, the producers' cartel, said it had instructed its members to cancel plans to raise output in order to bring the price down.

Ali Rodriguez, Opec's president, said that there was no need for a hike in production as prices had fallen 10 per cent over the last month.

Opec agreed on 17 July that it would raise output by 500,000 barrels a day as long as the oil price stayed above $28 every day until the end of the month. Mr Rodriguez said he had written to Opec members to tell them "there is no boost in production since the terms were not met".

Opec had already increased production twice this year in response to pressure from the US over the soaring price.