Oil prices rise as global market fears ease, but outlook remains weak

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SEOUL/SINGAPORE (Aug 27): Oil prices climbed by around $1 a barrel on Thursday on an unexpected fall in US crude inventories and a rally in global equity markets, although ongoing oversupply capped gains.

Asian stocks rose on Thursday as a sharp rebound on Wall Street and gains in battered Chinese shares eased fears of a deep and protracted global market rout, while the dollar also rallied as risk aversion eased.

Oil markets moved away from 2009 lows reached earlier this week, although high production around the world and a weakening Asian demand outlook still dragged on prices.

Front-month Brent, the global oil benchmark, was up $1.16, or 2.67%, at $44.30 a barrel by 0636 GMT. US crude's front-month contract was up $1.11 at $39.71 a barrel.

US crude inventories fell 5.5 million barrels in the week to Aug 21, the biggest one-week decline since early June, data from the Energy Information Administration showed on Wednesday. That was in line with the industry group the American Petroleum Institute's late-Tuesday report.

Analysts had expected an increase of 1 million barrels.

Yet some said the inventory fall may not mark the start of a trend. "This sudden drop in inventories should be the result of drops in US crude imports, suggesting that this week could be an anomaly," said Daniel Ang of Singapore-based brokerage Phillip Futures.

And despite a pick-up in markets across Asia on Thursday, the overall economic outlook in the region remained weak.

In a move to support auto sales in China, which have dropped for four straight months in their longest downturn on record, the Beijing government this week cut reserve requirements for auto and financial leasing companies.

But the measures may not be enough to boost car sales or oil demand, which has also been hit by the weakening auto sector.

Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, said that while the reserve rate cut would make it easier to finance car sales, the move offered largely "psychological support" as most Chinese car-buyers still made their purchases in cash, without financing.