Oil prices rebound by more than $2 a barrel on prospect of tightening US crude supplies

By Laila Kearney

NEW YORK, July 29 (Reuters) – Oil prices rose by more than $2 a barrel in early trade on Wednesday on shrinking U.S. crude inventories, recouping some of the previous ​session’s losses caused by a pause in fighting between ‌Washington and Tehran.

Brent futures increased by $2.71, or 3.2%, to $86.80 a barrel at 0002 GMT, while U.S. West Texas Intermediate (WTI) crude rose $2.26, or 3.4%, to $81.95.

U.S. crude inventories fell by about 3.3 million barrels in the week ended July 24 ,market sources said ‌on ​Tuesday, citing data from the American Petroleum ⁠Institute.

Gasoline inventories, meanwhile, grew by ⁠918,000 barrels, while distillate inventories climbed 355,000 barrels compared with a week earlier, the sources said.

Official inventory data from the Energy Information Administration is due later on Wednesday.

Further supporting prices, OPEC+ will ​likely halt oil output increases for three months starting in October, sources told Reuters, after the producer group completes the scheduled return ⁠of barrels following voluntary cuts.

Oil prices ⁠have whipsawed on the U.S.-Israeli war in Iran, which ​has disrupted global flows of crude oil, particularly with the effective closure ​of the Strait of Hormuz.

Prices plunged by about 5% on ‌Tuesday to a two-week low on hopes that efforts to end the U.S.-Iran conflict would resume in earnest after a pause in hostilities.

U.S. President Donald Trump, who called off a two-week U.S. bombing campaign ⁠over the weekend, told .Fox News on Tuesday that there were “good talks” with Iran, but threatened more strikes if negotiations break down. Iran, however, has denied ⁠that it is ‌seeking to resume talks with the U.S.

Meanwhile, a ⁠Gulf source and a Western diplomat told Reuters that ​Oman ‌has presented Iran with a plan to manage ​the strait, which ⁠would include collecting voluntary fees for using the passageway.

The proposals, backed by Gulf states, aim to serve as a basis to end the disruption to trade through the strait caused by the war.

(Reporting by Laila Kearney in New York; additional reporting by by Arathy Somasekhar in HoustonEditing ​by Shri Navaratnam)