UPDATE 6-Oil down slightly despite trade war fear; U.S. inventory draw supports

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NEW YORK (Reuters) – Oil was down less than half a percent on Wednesday, as a surprise draw in U.S. crude stockpiles brought prices almost all the way back from a two-week low hit in early trade after China proposed a broad range of tariffs on U.S. exports that fed fears of a burgeoning trade war.

FILE PHOTO – A pump jack stands idle in Dewitt County, Texas January 13, 2016. REUTERS/Anna Driver/File Photo

Both Brent and U.S. crude slid to two-week lows after China, the world’s largest importer of raw materials, hit back at the Trump administration’s plan to levy tariffs on $50 billion of its goods, proposing duties on a broad range of U.S. imports including soybeans, planes, cars, whiskey and chemicals.

Brent hit a session low of $66.69 and U.S. crude slumped as low as $62.06.

“I have high confidence that it will stagnate economic growth,” said Michael McAllister, exploration and production equity analyst at MUFG Securities in New York.

“It would be negative for pricing,” he added.

But by 12:43 EDT (1643 GMT) Brent crude futures for June delivery were down just 22 cents at $67.90 a barrel, a 0.3 percent loss. U.S. West Texas Intermediate (WTI) crude futures for May delivery were down 14 cents to $63.37 a barrel, off 0.2 percent.

Prices pared losses after the Energy Information Administration released data showing U.S. crude inventories fell by 4.6 million barrels in the latest week. Analysts had expected an increase of 246,000 barrels.

“The report was mostly supportive with strong demand for crude oil from the 93 percent refinery utilization rate and the high level of crude oil exports of over 2 million barrels per day,” said John Kilduff, partner at energy hedge fund Again Capital LLC in New York.

The drop in inventories came as refinery crude runs rose by 141,000 barrels per day, EIA data showed. Refinery utilization rates USOIRU=ECI rose by 0.7 percentage point.

However, crude stocks at the Cushing, Oklahoma, delivery hub rose by 3.7 million barrels, EIA said.

U.S. crude production continued to surge, hitting a new weekly record of 10.46 million barrels per day (bpd) compared with 10.433 million bpd last week.

OPEC oil output fell in March to an 11-month low due to declining Angolan exports, Libyan outages and a further slide in Venezuelan output, a Reuters survey found, sending compliance with a supply-cutting deal to another record.

Additional reporting by Amanda Cooper in London and Koustav Samanta in Singapore; Editing by David Gregorio

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