NEW YORK (Bloomberg) -- Oil climbed after U.S. crude inventories unexpectedly dropped from the highest level in more than eight decades.

 

Futures rose the most in three weeks in New York. Crude supplies fell 4.94 MMbbl last week, Energy Information Administration data show. A 2.85 MMbbl gain was projected in a Bloomberg survey of analysts. Refineries processed the most crude in three months as output and imports slipped. Diesel led gains after the report showed stockpiles of distillate fuel, which includes diesel and heating oil, tumbled on the East Coast.

 

"This is a welcome number," said Scott Roberts, portfolio manager and co-head of high yield who manages $2.7 billion at Invesco Advisers Inc. in Atlanta. "It’s always good to see a crude draw in April."

 

Prices also advanced after Kuwait said a deal to freeze output can be reached without Iran. Major producers have no option but to reach an agreement to cap production when they meet April 17 in Doha and this may set a price floor, Nawal al-Fezaia, Kuwait’s governor to the Organization of Petroleum Exporting Countries, said Tuesday. Oil has swung between gains and losses since Friday amid speculation about whether an agreement can be reached at the meeting.

 

West Texas Intermediate for May delivery increased $1.86, or 5.2%, to settle at $37.75/bbl on the New York Mercantile Exchange. The contract rose 0.5% Tuesday after falling 6.9% the previous two sessions. Total volume traded was 30% higher than the 100-day average.

 

Crude Stockpiles

 

Brent for June settlement climbed $1.97, or 5.2%, to $39.84/bbl on the London-based ICE Futures Europe exchange. The front-month contract’s discount to the second-month narrowed to 16 cents, the least since January, while the spread to the one-year contract slipped to the narrowest since July.

 

U.S. crude stockpiles dropped to 529. 9 MMbbl in the week ended April 1, the EIA data show. Inventories climbed 32.9 MMbbl to 534.8 MMbbl, the highest since 1930, in the prior seven weeks.

 

Production fell by 14,000 bopd to 9.01 MMbopd, the lowest since November 2014. Rigs targeting oil in the nation’s fields fell to 362 last week, the least since November 2009, Baker Hughes Inc. said on its website April 1.

 

Falling Output

 

"Production will fall below 9 million barrels a day by summer," said Kris Kelley, an analyst at Janus Capital Management LLC in Denver. "The question is how far it will go. I think that by the end of the year production could easily fall to 8.5 million."

 

Crude imports dropped 6.4% to 7.25 MMbpd, the lowest in two months.

 

Refineries bolstered operating rates by 1 percentage point to 91.4% of capacity. U.S. refiners typically increase utilization in April as they finish maintenance before the summer peak driving season.

 

"Refinery utilization is picking up and production is down," said Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments. "We’re on the right path. This should be the end of the huge builds in crude and as refinery utilization grows further, we’ll get more draws."

 

Stockpiles of distillate fuel on the East Coast fell 3.01 MMbbl to 53.4 MMbbl, the least since July. Nationwide distillate supplies rose 1.8 MMbbl. Gasoline inventories rose 1.44 MMbbl.

 

Diesel futures for May delivery increased 6.1% to settle at $1.1403 a gallon. It was the biggest gain since Feb. 12. May gasoline advanced 1.2% to close at $1.3947.

 

"There’s a danger today of there being too much enthusiasm about this report," Roberts said. "The builds in gasoline and diesel have me concerned because that could speak to weak fuel demand. We need gasoline to be strong."