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Oil market rallies on surprise drop in US crude stocks

World oil prices have surged higher after crude inventories unexpectedly fell from a record high in the United States, suggesting better demand in the world's largest crude consumer.

NEW YORK: World oil prices surged higher Wednesday after crude inventories unexpectedly fell from a record high in the United States, suggesting better demand in the world's largest crude consumer.

The US benchmark, West Texas Intermediate for delivery in June, jumped $1.27 from Tuesday to close at $100.77 a barrel.

Brent North Sea crude for June gained $1.07 at $108.13 a barrel in London.

The US Department of Energy (DoE) announced that American crude reserves sank by 1.8 million barrels in the week to May 2.

That confounded market expectations for a gain of 1.2 million barrels.

"The sharper drop suggests the demand for oil was stronger than expected at the end of April, which is consistent with some of the other US data we have seen of late, most notably non-farm payrolls," said analyst Fawad Razaqzada at trading site Forex.com.

But the DoE report was bearish on gasoline demand as the US gears up for the summer holiday driving season. Gasoline reserves rose 1.6 million barrels, much more than the 100,000 barrels expected by analysts.

"This took the gloss off an otherwise bullish oil report," Razaqzada told AFP.

"As we head into the US driving season, gasoline stocks in particular will be monitored closely by market participants."

Traders also digested comments from Federal Reserve Chair Janet Yellen, who opened congressional testimony by restating the need for loose monetary policy even as the economy strengthens.

Yellen said the US economy is doing better, but that the "considerable degree of slack" in the labor market means "a high degree of monetary accommodation remains warranted."

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