By Scott DiSavino
NEW YORK (Reuters) -Oil prices climbed more than 1% on Tuesday after China said it will act to support economic growth in the world's biggest oil importer and on expectations the U.S. Federal Reserve will stop raising interest rates soon and a forecast decline in U.S. output.
Brent futures rose $1.13, or 1.4%, to settle at $79.63 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $1.60, or 2.2%, to settle at $75.75.
That cut Brent's premium over WTI to its lowest since late May. The smaller premium makes it less likely energy firms will spend money to send ships to the U.S. to pick up crude cargoes for export.
In the U.S., several pieces of economic news over the past week or so, including a report Tuesday showing retail sales rose by less than expected in June, have boosted expectations the Fed will stop hiking rates after a widely expected 25 basis-point increase at its July 25-26 meeting.
"With the manufacturing sector languishing and inflation showing encouraging signs of slowing, the widely-anticipated July Federal Reserve interest rate hike may be the last," analysts at bank ING said in a note.
Higher interest rates increase borrowing costs and can slow economic growth and reduce oil demand.
After posting sluggish gross domestic product data earlier in the week, China's top economic planner pledged it would roll out policies to "restore and expand" consumption without delay.
Energy traders expect "the oil market will remain tight as Russian shipments drop and as China prepares to provide more support to households," said Edward Moya, senior market analyst at data and analytics firm OANDA.
The International Monetary Fund's (IMF) chief Kristalina Georgieva, however, told financial leaders of the Group of 20 nations that medium-term growth prospects remain weak.
U.S. SUPPLY AND INVENTORIES
On the supply side, U.S. shale oil production will likely decline in August for the first time since December, projections from the U.S. Energy Information Administration (EIA) showed.
Looking ahead, the oil market is waiting for U.S. oil inventory data from the American Petroleum Institute (API), an industry group, on Tuesday and the EIA on Wednesday.
Analysts in a Reuters poll forecast a 2.4-million barrel draw from U.S. crude stocks during the week ended July 14. [EIA/S] [API/S]
If correct, that would be the fourth crude stock decline in five weeks, and compares with a decrease of 0.4 million barrels in the same week last year and a five-year (2018-2022) average increase of 1.9 million barrels.
"Crude’s price action shows a bullish market outlook on crude oil stockpiles and inventories numbers ... traders are keen to observe the impact of the hot temperatures felt in recent weeks on crude supply," analysts at energy consulting firm Gelber and Associates said in a note.
Heat waves intensified across southern and eastern Europe, Asia, and much of the U.S. as the World Meteorological Organization warned of an increased risk of deaths due to the extreme weather.