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By Scott DiSavino
NEW YORK (Reuters) - Oil prices rose about 2% to a two-week high on Tuesday on optimism the U.S. Federal Reserve will cut interest rates this week for the first time in more than 10 years, boosting demand expectations in the world's biggest oil user.
Meanwhile, ahead of weekly data, crude oil inventories in the United States were forecast to have dropped for a seventh straight week.
On its second-to-last day as the front-month contract, Brent <LCOc1> futures for September delivery gained $1.01, or 1.6%, to settle at $64.72 a barrel, while U.S. West Texas Intermediate (WTI) crude <CLc1> gained $1.18, or 2.1%, to settle at $58.05.
That put both contracts up for a fourth day in a row to their highest closes since July 15.
For the month, however, both contracts were still set to decline due to lingering worries about oil demand with Brent down over 2% and WTI down less than 1%.
U.S. crude futures for delivery in December 2019 <CLZ9> traded near the biggest premium to futures for delivery in December 2020 <CLZ9-Z0> in about two months at $3.15 a barrel. Oil producers have been selling the back end of the curve as they hedge future output, leading to the spread widening, traders and brokers said.
"Crude oil moved higher today partly due to anticipation of another meaningful inventory draw this week along with tensions that remain escalated in the Strait of Hormuz," said Brian Kessens, senior portfolio manager at energy investment manager Tortoise, noting "the prospect of lower rates and U.S.-China trade talks are buoying economic prospects."
U.S. central bankers began their two-day meeting on Tuesday and were expected to lower borrowing costs for the first time since the depths of the financial crisis more than a decade ago.
"Regarding the Fed, the market has priced in a 25 basis-point cut for Wednesday," Harry Tchilinguirian, global oil strategist at BNP Paribas in London, told the Reuters Global Oil Forum.
U.S. President Donald Trump called on the Federal Reserve to make a large interest rate cut, saying he was disappointed in the central bank and that it had put him at a disadvantage by not acting sooner.
Economic growth in the United States slowed less than expected in the second quarter, strengthening the outlook for oil consumption, but elsewhere, disappointing economic data has increased concerns about slower growth.
In the United States, analysts forecast crude stockpiles dropped by 2.6 million barrels last week, according to a Reuters poll. The American Petroleum Institute (API), an industry group, is due to release its inventory report at 4:30 p.m. EDT (2030 GMT), followed by U.S. government data on Wednesday morning.