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Oil prices rose on Thursday, recouping a portion of the losses of the last two days that were driven by reports showing surprise gains in USA inventories of crude, along with mounting concern over trade friction between the US and China. The actual record was a build that surprised the market. Thursday's data suggests last week's increase might have been an anomaly, traders said.

Even with last week's rise, overall US crude inventories are below the 5-year average of around 420 million barrels.

"Tariffs look set to kick in as soon as September, meaning that any barrels arriving on Chinese shores will be hit with a 25% tariff - taking USA crude from an approximately $4/Bbl discount vs. global benchmarks, to a premium of approximately $13.50/Bbl", he added.

Crude prices remained supported by the prospect of an Iranian supply squeeze following the imposition of U.S. oil sanctions, with yesterday's rally stymied by short-term bearish supply factors that continue to weigh on prices. Additionally, he said, US monthly figures for production fell in May, suggesting that output may be curbed later in the year, he said.

US West Texas Intermediate (WTI) crude futures fell US$1.10 to settle at US$67.66 a barrel, a 1.6 per cent loss.

"Trade volume is pretty low in futures today".

Saudi Arabia, Russia, Kuwait and the United Arab Emirates have increased production to help to compensate for an anticipated shortfall in Iranian crude supplies once US sanctions take effect.

Additionally, Russia appears to have increased its production in line with OPEC's decision in late June to increase its output, with its crude and condensate production increasing 1.4% last month to 11.215 million b/d, the energy ministry said yesterday.

There were also factors holding oil markets in check. "A lot of this is the risk premium priced in for Iran and when do we start seeing an impact on supply there", ING commodities strategist Warren Patterson said.

The speculator group cut its combined futures and options position in NY and London by 5,287 contracts to 407,001 during the week ending July 31, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

US President Donald Trump's decision to pull out of an global nuclear deal and reimpose sanctions on Iran has angered Tehran. USA crude ended the week down 0.4 percent, while Brent has fallen 1.5 percent in the week so far.

Nonetheless, the tough talk from Washington on trade with China has put pressure on oil prices.

China said it would hit back if the United States takes further steps hindering trade, as the Trump administration considers slapping a 25 per cent tariff on US$200 billion worth of Chinese goods.