Oil surges on stockpile shortage

There have been signs of weaker demand for crude

Oil prices have rebounded after the US said petrol stockpiles had fallen unexpectedly last week.

US light, sweet crude settled up $4.58 at $126.77 a barrel after falling to a near three month low on Tuesday. London Brent crude rose $4.39 to $127.10.

Petrol supplies shrank by 3.5 million barrels, the US Energy Information Administration said. Analysts had expected a 200,000 barrel gain.

Oil has plunged steeply from the record $147.27 hit on 11 July.

Currency factor

The fall - which saw oil almost slide to $120 this week - has been seen by analysts as a response to a strengthening US dollar and signs of weaker demand for crude.

The dollar, which offers an alternative investment to oil and often dictates the way it moves, hit a one-month high.

In previous months, oil prices have rallied to record levels partly because some investors were looking to protect themselves from a weakening US currency.

Another factor helping to cut oil prices in recent weeks has been on the supply side, where there were indications that tensions were easing between oil-producer Iran and the US over its nuclear programme.

This reduced fears that the supply of crude oil from Iran could be interrupted.

But on Wednesday, Iran said that it would continue its nuclear path.

Western powers had given Tehran two weeks from 19 July to respond to an offer of holding off more UN sanctions if Iran froze expansion of its nuclear work.