Oil prices fall as increased USA drilling activity points to higher output

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This is likely to cripple Iran's ability to export crude oil, lowering global supply of the commodity.

Oil hit a six-week high on Wednesday after a surprise decline in US inventories and as concern persisted over possible disruption to Middle East supply.

Financial sanctions imposed by the United States in August on Venezuela and state-run oil firm PDVSA have created obstacles for selling crude cargoes to US refiners, shrinking the number of customers PDVSA has in the U.S.

U.S. West Texas Intermediate (WTI) crude futures gained $1.63, or 2.6 percent, to settle at $65.17, their highest since February 2.

Brent futures were up 98 cents at $67.03 a barrel by 1212 GMT, around their highest level since late February.

"Crude oil is poised for a breakout from its tight trading range, which presents an opportunity for traders either way it goes, said * a data-category="performance marketing" data-action="content cta link click" data-label="E\*trade" data-custom-dimension62="broker" data-custom-dimension63="etrade" href="/broker/etrade-review/" *E*TRADE in a recent blog post. A Bloomberg survey ahead of the government report forecast stockpiles rose by 3.25 million barrels.

The recent price decline is "a cause and effect of the increase in US shale drilling where weaker speculative longs remain quite fragile to global risk sentiment", Stephen Innes, head of trading for Asia at currency broker Oanda, told clients in a note Tuesday.

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Only Russia produces more, at around 11 million bpd, although US output is expected to overtake Russia's later this year as well.

The Energy Information Administration will issue its weekly update on USA petroleum supplies Wednesday.

Monday's price falls in part reversed increases last Friday, which came on concerns over tensions in the Middle East.

The possibility that the USA could renew sanctions on Iran would hamper output from the country.

Saudi Arabia's Crown Prince Mohammed bin Salman on Tuesday arrived in Washington for a state visit, raising speculation the United States could reimpose sanctions on Iran, following rewnewed criticism of the 2015 nuclear deal. Earlier this week, Senator Bob Corker said that Trump will not extend sanctions waivers on Iran in May. April heating oil rose 2.4% to $1.952 a gallon.

A rapidly shrinking glut will fuel debate over how long the curbs need to be in place, although top exporter Saudi Arabia has said it is too early to discuss an exit strategy.

- Biman Mukherji contributed to this article.

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