U.S. crude-oil futures rallied briefly Thursday after weekly U.S. government data showed that crude-oil inventories fell by significantly more than expected.
U.S. light, sweet crude oil for August delivery initially shot up as high as $88.03, or 37 cents, after the data were released before retreating somewhat. Crude oil is currently down 15 cents to $87.51.
The U.S. Energy Information Administration said U.S. crude-oil inventories fell by 4.3 million barrels in the week ended June 29.
Analysts in a Dow Jones Newswires survey had expected crude-oil inventories to drop by 1.4 million barrels.
Tim Evans, an analyst at Citi Futures Perspective, said much of the difference could be explained by Tropical Storm Debby in the Gulf of Mexico that shuttered some production. Still, Mr. Evans noted that gasoline demand was solid, according to the data.
The EIA report said gasoline stockpiles rose by only 151,000 barrels, less than the rise of 500,000 barrels predicted in the Newswires survey. Meanwhile, inventories of distillates, such as heating oil and diesel, fell 1.051 million barrels, compared to a survey prediction of a gain of 300,000 barrels.
"There was nothing bearish in this report," Mr. Evans said. "So now we're free to move higher on other factors."
Earlier, oil had been in a deeper retreat based on a stronger dollar.
China moved to lower its benchmark interest rate for the second time in less than a month. The European Central Bank cut its main interest rate to a historic low of 0.75% Thursday, as expected, offering a degree of relief to the euro zone's faltering economy amid signs that inflationary pressures are fading.
The moves by these central banks contributed to a 0.87% strengthening of the U.S. dollar index as measured against all currencies. The U.S. dollar also strengthened 1.2% against the euro. Since crude oil is traded in dollars, a stronger dollar renders oil more costly for buyers who use other currencies.
"If the dollar is going to get stronger, crude is going to get weaker," said Tyche Capital Management managing member Tariq Zahir.
Brent crude-oil futures strengthened on news that an oilfield strike in Norway was expanding. Prospects of less supply sent Brent futures up $1.34 to $101.11 a barrel.
Norway's Statoil ASA (STO, STL.OS) said it was preparing to shut down production as the country's oil industry association disclosed a lockout starting midnight Monday after talks over a new labor contract broke down.
Statoil said the shortfall in its production will be around 1.2 million barrels of oil equivalent a day.
--Tom Fairless, Geoffrey Smith and Selina Williams contributed to this article.
