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Oil prices strengthened Thursday, turning higher after traders saw an industry report suggesting USA crude stockpiles would soon begin to decline again after a surprise rise in the latest week.

An oil tanker unloads crude oil at a crude oil terminal in Zhoushan, Zhejiang province, China July 4, 2018.

Oil prices traded slightly higher on Thursday, reversing course after a report suggested crude stockpiles at the US storage hub at Cushing, Oklahoma fell in the latest week.

The combination of crumbling Venezuelan oil production and the aggressive USA efforts to curtail Iranian exports is going to tighten the market.

Analysts said the outlook beyond the short-term was turning bearish.

Futures fell for the third day in NY, losing as much as 1.1 per cent to hit their lowest level since June 22, but USA government's data showed a surprise gain in nationwide stockpiles on Wednesday. The American Petroleum Institute (API) recently noted that crude oil barrel counts in the U.S. are back on the rise, expanding last week by over 5 million barrels, erasing several weeks of expectations for steady declines in reserve supplies.

But a complete halt to Iranian supplies looks unlikely with Bloomberg reporting on Friday that China, Iran's biggest customer, has rejected a USA request to cut imports from the OPEC member.

Before the Genscape report sparked a rally, futures fell early on concerns about oversupply.

Saudi Arabia, Russia, Kuwait and the United Arab Emirates have increased production, as agreed at a meeting in June, to help to compensate for an anticipated shortfall in Iranian crude supplies once USA sanctions come into force later this year.

The Organization of the Petroleum Exporting Countries and partners including Russian Federation had cut output to rebalance supply and demand.

"Oil is holding up reasonably well ..."

"It's a jittery feel here, as long as we have Iranian sanctions uncertainty and tariff uncertainty, and it doesn't take much to spark a significant swing one way or the other", said Jim Ritterbusch, an analyst in Galena, Illinois.

Oil last month posted the worst loss in two years on concern a trade war between the United States and China could curb economic growth and limit energy demand.

The kingdom has been under acute pressure from President Donald Trump to open the taps as he chokes off exports from Saudi's political rival, Iran.

"It is unclear that the higher tariffs proposed by the Trump Administration will ever be imposed and if they are that they will have a major detrimental impact on oil demand", Flynn said.

“There are a lot of escalation points that could occur very quickly and that worries me, ” Barratt said. China has said it will retaliate.

U.S. crude inventories rose by 3.8 million barrels last week as exports declined, creating the largest increase in Gulf Coast stocks since March, the Energy Information Administration said.