Saudi Arabia says prepared for ceasefire in Yemen if Houthis agree

A hole is seen during a visit by human rights activists to a community hall that was struck by an airstrike during a funeral on October 8, in Sanaa, Yemen,

By William James

LONDON (Reuters) – Saudi Arabia is prepared to agree to a ceasefire in Yemen if the Iran-allied Houthis agree, Saudi Foreign Minister Adel al-Jubeir said on Monday, adding that he was skeptical about efforts for peace after previous ceasefire attempts had failed.

The Saudi-led military campaign in Yemen has faced heavy criticism since an air strike this month on a funeral gathering in the Yemeni capital Sanaa that killed 140 people according to a United Nations’ estimate and 82 according to the Houthis.

The United States and Britain, which have both supported the Saudi-led campaign, called on Sunday for an immediate and unconditional ceasefire between Houthis and the Saudi-backed, internationally recognized government.

“We would like to see a ceasefire yesterday,” Jubeir told reporters in London. “Everybody wants a ceasefire in Yemen, nobody more so than the kingdom of Saudi Arabia and the coalition members.”

He accused the Houthis of reneging on previous deals.

“So yes, we come at this with a lot of cynicism. But we are prepared, the Yemeni government is prepared, to agree to a cessation of hostilities if the Houthis agree to it. The coalition countries will respect the desire of the Yemeni government,” Jubeir said.

British Foreign Secretary Boris Johnson, together with U.S. Secretary of State John Kerry, met Jubeir and officials from the United Arab Emirates on Sunday and said the conflict in Yemen was causing increasing international concern.

“The fatalities that we’re seeing there are unacceptable,” Johnson said. Britain’s Foreign Office said that Saudi Arabia’s approach to humanitarian law will be a factor in London’s continual assessment of arms sales to the kingdom, and it would look into the air strike on the funeral as part of that process.

HOUTHIS “LOSING GROUND”

Since March 2015 Saudi Arabia and several Gulf Arab allies have carried out air strikes in support of the government of Abd Rabbu Mansour al-Hadi against Houthi fighters, who are backed by troops loyal to ex-President Ali Abdullah Saleh. Gulf states have also deployed troops in Yemen.

Saudi Arabia and Hadi’s government accuse Shi’ite Iran of supplying weapons to the Houthis to help spread Tehran’s influence at the expense of Riyadh, its main regional rival. Iran denies the charge.

The Houthis still control Sanaa and large areas of northern and western Yemen, but Jubeir said it was a matter of time before they were defeated.

“The momentum is going against them in Yemen. They’re losing more territory, more people are mobilized against them. They are not paying their bills, businesses are not extending credit to them,” Jubeir said.

Jubeir said the Sunni Kingdom was being very careful to abide by humanitarian law in the Yemen conflict. He said that those responsible for the funeral bombing would be punished and victims would be compensated.

Asked about an offensive on Islamic State militants in the Iraqi city of Mosul, Jubeir said Islamic State would lose the war but he added that he was worried that Shi’ite militias would enter Mosul and “engage in bloodbaths”.

“This would have tremendously negative consequences and would further inflame the sectarian tensions in Iraq. That would be the greatest danger we see.”

(Reporting by William James, writing by Guy Faulconbridge; editing by Stephen Addison and Dominic Evans)

U.S. Navy ship targeted in failed missile attack from Yemen

The USS Mason (DDG 87), a guided missile destroyer, arrives at Port Canaveral, Florida

By Phil Stewart

WASHINGTON (Reuters) – A U.S. Navy guided missile destroyer was targeted on Sunday in a failed missile attack from territory in Yemen controlled by Iran-aligned Houthi rebels, a U.S. military spokesman told Reuters, saying neither of the two missiles hit the ship.

The attempted strike on the USS Mason, which was first reported by Reuters, came just a week after a United Arab Emirates vessel came under attack from Houthis and suggests growing risks to the U.S. military from Yemen’s conflict.

The U.S. government, which has become increasingly vocal about civilian casualties in the war, this weekend announced a review of its support to a Saudi Arabia-led coalition battling the Houthis after a strike on mourners in the capital Sanaa that killed up to 140 people.

The failed missile attack on the USS Mason began around 7 p.m. local time, when the ship detected two inbound missiles over a 60-minute period in the Red Sea off Yemen’s coast, the U.S. military said.

“Both missiles impacted the water before reaching the ship,” Pentagon spokesman Captain Jeff Davis said. “There were no injuries to our sailors and no damage to the ship.”

Saudi Arabia and the United States blame Shi’ite Iran for supplying weapons to the Houthis. Tehran views the Houthis, who are from a Shi’ite sect, as the legitimate authority in Yemen but denies it supplies them with weapons.

A U.S. defense official, speaking on condition of anonymity, said the first missile triggered counter-measures from the USS Mason. It was not immediately clear whether those defenses may have helped prevent a direct hit on the ship.

The USS Mason did not return fire, the official said, adding that the incident took place just north of the Bab al-Mandab strait off Yemen’s southern coast.

Last week’s attack on the UAE vessel also took place around the Bab al-Mandab strait, in what the UAE branded an “act of terrorism.”

In 2013, more than 3.4 million barrels of oil passed through the 20 km (12 mile)-wide Bab al-Mandab each day, the U.S. Energy Information Administration says.

It was unclear what actions the U.S. military might take, but Davis stressed a commitment to defend freedom of navigation and protect U.S. forces.

“We will continue to take all necessary steps to ensure the safety of our ships and our service members,” he said.

The attack also came the same day that Yemen’s powerful former president, Ali Abdullah Saleh, a key Houthi ally, called for an escalation of attacks against Saudi Arabia, demanding “battle readiness at the fronts on the (Saudi) border”.

An estimated 10,000 people have been killed in Yemen’s war. The United Nations blames Saudi-led coalition strikes for 60 percent of some 3,800 civilian deaths since they began in March 2015.

(Reporting by Phil Stewart; Editing by Paul Tait)

Iran tells Saudi vessels to avoid its waters

Members of Royal Saudi Navy takes part in ÒGulf Shield 1Ó exercise, east of Saudi Arabia, in this handout photo received October 4, 2016. Saudi Press Agency/

DUBAI (Reuters) – Iran’s powerful Revolutionary Guards (IRGC) warned Saudi naval vessels taking part in military exercises in the Gulf on Wednesday not to get close to Iranian waters, in a sign of heightened tensions between the two regional rivals.

Saudi Arabia began naval war games including live fire exercises on Tuesday in the Gulf and Strait of Hormuz, the world’s most important oil route.

Tehran and Riyadh are fighting several proxy wars in the Middle East, including in Syria and Yemen, but both have been cautious about direct military confrontation.

“The Revolutionary Guards naval forces believe this war game is mainly to create tension and destabilize the Persian Gulf,” the IRGC said in a statement published on Tasnim news agency.

About 17 million barrels per day, or about 30 percent of all seaborne-traded oil, passed through the Strait of Hormuz in 2013, according to the U.S. Energy Information Administration.

The United States, the kingdom’s leading non-Arab ally, said in August and September that IRGC vessels “harassed” U.S. warships several times in the Gulf in incidents that Washington described as “unsafe and unprofessional.”

(Reporting by Bozorgmehr Sharafedin, Editing by William Maclean and Andrew Heavens)

U.N. calls Aleppo a slaughterhouse as Russia, Syria forces bomb hospitals

Medics inspect the damage outside a field hospital after an airstrike in the rebel-held al-Maadi neighbourhood of Aleppo, Syria,

By Ellen Francis and Tom Perry

BEIRUT (Reuters) – Russian or Syrian warplanes knocked two hospitals out of service in the besieged rebel sector of Aleppo on Wednesday and ground forces intensified an assault in a battle which the United Nations said had made the city worse than a slaughterhouse.

Two patients died in one of the hospitals and other shelling killed six residents queuing for bread under a siege that has trapped 250,000 people with food running out.

The week-old assault, which could herald a turning point in the war, has already killed hundreds of people, with bunker-busting bombs bringing down buildings on residents huddled inside. Only about 30 doctors are believed to be left inside the besieged zone, coping with hundreds of wounded a day.

“The warplane flew over us and directly started dropping its missiles … at around 4 a.m.,” Mohammad Abu Rajab, a radiologist at the M10 hospital, the largest trauma hospital in the city’s rebel-held sector, told Reuters.

“Rubble fell in on the patients in the intensive care unit.”

M10 hospital workers said oxygen and power generators were destroyed and patients were transferred to another hospital.

Photographs sent to Reuters by a hospital worker at the facility showed damaged storage tanks, a rubble strewn area, and the collapsed roof of what he said was a power facility.

There were no initial reports of casualties there, but medical charity Médecins Sans Frontières (MSF) said two patients had been killed at the other hospital, in shelling which took it out of service as well, leaving east Aleppo with only seven doctors in a position to undertake surgery.

“And this comes at a time when east Aleppo has been under siege since July and is suffering the bloodiest indiscriminate bombing since the beginning of the war,” MSF’s Syria head Carlos Francisco said.

The government of President Bashar al-Assad, backed by Russian air power, Iranian ground forces and Shi’ite militia fighters from Iran, Iraq and Lebanon, has launched a massive assault to crush the rebels’ last major urban stronghold.

Syria’s largest city before the war, Aleppo has been divided for years between government and rebel zones, and would be the biggest strategic prize of the war for Assad and his allies.

Taking full control of the city would restore near full government rule over the most important cities of western Syria, where nearly all of the population lived before the start of a conflict that has since made half of Syrians homeless, caused a refugee crisis and contributed to the rise of Islamic State.

UNPRECEDENTED BOMBING

The offensive began with unprecedentedly fierce bombing last week, followed by a ground campaign this week, burying a ceasefire that had been the culmination of months of diplomacy between Washington and Moscow.

Washington says Moscow and Damascus are guilty of war crimes for targeting civilians, hospitals, rescue workers and aid deliveries, to break the will of residents and force them to surrender. Syria and Russia say they target only militants.

Asked by a reporter at the United Nations whether Syria had bombed the two hospitals hit on Wednesday, the Syrian ambassador to the world body, Bashar Ja’afari, appeared to laugh.

The Syrian army said a Nusra Front position had been destroyed in Aleppo’s old quarter, and other militant-held areas targeted in “concentrated air strikes” near the city.

U.N. Secretary-General Ban Ki-moon said those using “ever more destructive weapons” were committing war crimes. Describing the situation in Aleppo, he said: “This is worse. Even a slaughterhouse is more humane.”

France’s Foreign Minister Jean-Marc Ayrault said he was working to put forward a United Nations Security Council resolution to impose a ceasefire in Aleppo, and that any country that opposed it would be deemed complicit in war crimes.

“This resolution will leave everyone facing their responsibilities: those who don’t vote it, risk being held responsible for complicity in war crimes,” he said.

Another hospital, M2, was damaged by bombardment in the al-Maadi district, where at least six people were killed while queuing for bread at a nearby bakery, according to the Syrian Observatory for Human Rights monitoring body and residents.

Food supplies are scarce in the besieged area, and those trapped inside often line up before dawn for food.

The collapse of the peace process leaves U.S. policy on Syria in tatters and is a personal blow to Secretary of State John Kerry, who led talks with Moscow despite scepticism from other top officials in President Barack Obama’s administration.

Kerry spoke to Lavrov on Wednesday and Russia said later that it was ready to continue diplomacy on Syria and would soon send experts to Geneva for talks with U.S. counterparts on normalizing the situation in Aleppo and elsewhere.

The U.S. State Department said non-diplomatic options to halt the violence had been discussed within the administration, but declined to say what the options might be.

BATTLEFIELD VICTORY

Assad’s Iranian and Lebanese Hezbollah allies have said in recent days the war will be won in combat.

But the rebels remain a potent military force even as they have lost control of urban areas. The collapse of peace efforts ends a proposed scheme to separate Western-backed fighters from hardened jihadists.

It has also raised the question of whether the rebels’ foreign backers, states including Saudi Arabia, Turkey and the United States, will increase military backing to rebels who have long said weapons they provide are inadequate.

The rebels’ main demand has long been for the provision of anti-aircraft missiles, but Washington has resisted this, fearing they could end up in the hands of jihadists.

U.S. officials told Reuters in Washington that the collapse of the Syrian ceasefire had heightened the possibility that Gulf states, particularly Saudi Arabia, might arm rebels with shoulder-fired anti-aircraft missiles.

A senior rebel commander, speaking on condition of anonymity, said it was not out of the question that this could happen. “The Americans might thinking about doing something, but nobody knows how big it will be,” the commander said.

Another rebel commander told Reuters his group had received deliveries of a new type of Grad surface-to-surface rockets. The rockets, with a range of 22-40 km, had arrived in “excellent quantities” and will be used on battlefronts in Aleppo, Hama and the coastal region, Colonel Fares al-Bayoush said.

Fierce fighting accompanied by air strikes was reported on Wednesday in northern Hama province between Syrian government and allied forces trying to recapture territory lost to insurgents this week, and rebels who made some advances, the Observatory and a rebel group said.

MORE GROUND ATTACKS

A senior official in Aleppo-based rebel group said pro-government forces were mobilizing in apparent preparation for more ground attacks in central areas of the city.

“There have been clashes in al-Suweiqa from 5 a.m. until now. The army advanced a little bit, and the guys are now repelling it, God willing,” a fighter in the rebel Levant Front group said in a recording sent to Reuters, referring to an area in the city center where there was also fighting on Tuesday.

Another rebel official said government forces were also attacking the insurgent-held Handarat refugee camp a few kilometers to the north of Aleppo.

“It doesn’t seem that their operation in the old city is the primary operation, it seems like a diversionary one so that the regime consumes the people on that front and advances in the camp,” the official, Zakaria Malahifij, head of the political office of the Fastaqim group, told Reuters from Turkey.

(Reporting by Tom Perry, Ellen Francis and Lisa Barrington in Beirut, Philip Pullella in Vatican City, John Irish in Paris and Stephanie Nebehay in Geneva, Lidia Kelly in Moscow, Michelle Nichols in New York and Arshad Mohammed in Washington, writing by Peter Graff, editing by Peter Millership and Philippa Fletcher)

Senate rejects Obama veto of Saudi Sept 11 bill

A man lays a flower on a monument engraved with names of victims of the September 11th attacks, during a memorial event marking the 15th anniversary

WASHINGTON (Reuters) – The U.S. Senate overwhelmingly rejected on Wednesday President Barack Obama’s veto of legislation allowing relatives of the victims of the Sept. 11 attacks to sue Saudi Arabia’s government.

As voting continued, the count was 87-0 against the veto. The measure next goes to the House of Representatives, which is due to vote later on Wednesday. If two-thirds of House members also support the “Justice Against Sponsors of Terrorism Act,” it would be the first veto override of Obama’s eight-year presidency.

(Reporting by Patricia Zengerle, Editing by Franklin Paul)

Senate clears way for $1.15 billion arms sale to Saudi Arabia

battle tank

By Patricia Zengerle

WASHINGTON (Reuters) – The U.S. Senate cleared the way for a $1.15 billion sale of tanks and other military equipment to Saudi Arabia on Wednesday, defending a frequent partner in the Middle East recently subject to harsh criticism in Congress.

The Senate voted 71 to 27 to kill legislation that would have stopped the sale.

The overwhelming vote stopped an effort led by Republican Senator Rand Paul and Democratic Senator Chris Murphy to block the deal over concerns including Saudi Arabia’s role in the 18-month-long war in Yemen and worries that it might fuel an ongoing regional arms race.

The Pentagon announced on Aug. 9 that the State Department had approved the potential sale of more than 130 Abrams battle tanks, 20 armored recovery vehicles and other equipment to Saudi Arabia.

The Defense Security Cooperation Agency said General Dynamics Corp would be the principal contractor for the sale.

Paul, Murphy and other opponents of the arms deal were sharply critical of the Riyadh government during debate before the vote, citing Yemen, the kingdom’s human rights record and its international support for a conservative form of Islam.

“If you’re serious about stopping the flow of extremist recruiting across this globe, then you have to be serious that the … brand of Islam that is spread by Saudi Arabia all over the world, is part of the problem,” Murphy said.

The criticism came days before lawmakers are expected to back another measure seen as anti-Saudi, a bill that would allow lawsuits against the country’s government by relatives of victims of the Sept. 11 attacks.

President Barack Obama has promised to veto that bill, but congressional leaders say there is a strong chance that lawmakers will override the veto and let the measure become law. Overriding a presidential veto requires a two-thirds vote in both the House and Senate.

In Yemen, where a Saudi-led coalition is battling Iranian-allied Houthis, the Houthis have accused the United States of arming and supporting the Saudis, who intervened on the side of Yemen’s exiled government.

The war has killed over 10,000 people and displaced more than 3 million.

But backers of the deal said Saudi Arabia is an important U.S. ally in a war-torn region, deserving of U.S. support.

“This motion comes at a singularly unfortunate time and would serve to convince Saudi Arabia and all other observers that the United States does not live up to its commitments,” Senator Majority Leader Mitch McConnell said.

(Reporting by Patricia Zengerle; Editing by Grant McCool and Sandra Maler)

Saudi Prince warns Iran against using force to pursue rivalry

Mecca Governor Prince al-Faisal speaks during news conference on conclusion of main rites of the haj pilgrimage in Mina

DUBAI (Reuters) – A senior Saudi official, responding to Iranian criticism of Riyadh’s management of the haj pilgrimage, urged Iran to end what he called wrong attitudes toward Arabs and warned it against any use of force in its rivalry with the kingdom.

Mecca province governor Prince Khaled al-Faisal, in remarks likely to be seen as a reference to Iran, added that the orderly conduct of the pilgrimage this year “is a response to all the lies and slanders made against the kingdom”.

The remarks carried by the official Saudi Press Agency (SPA) on Wednesday evening follow an escalating war of words between Shi’ite Muslim Iran and Sunni Saudi Arabia since a crush at the annual haj pilgrimage a year ago in which hundreds of pilgrims, many of them Iranians, died.

SPA quoted Prince Khaled as telling journalists his message to the Iranian leadership was “I pray to God Almighty to guide them and to deter them from their transgression and their wrong attitudes toward their fellow Muslim among the Arabs in Iraq, Syria, Yemen and around the world”.

“But if they are preparing an army to invade us, we are not easily taken by someone who would make war on us.”

“When we desire, and with the help of God Almighty, we will deter every aggressor and will never relent in protecting this holy land and our dear country. No one can defile any part from our country if any one of us remains on the face of the earth.”

No top Iranian leader has called for war with Saudi Arabia, something neither country wants.

But last year’s haj disaster, and the execution in January of dissident Saudi Shi’ite cleric Nimr al-Nimr, triggered months of scathing Iranian criticism of the kingdom.

Riyadh broke off relations with Tehran after its embassy there was attacked by Iranians protesting against Nimr’s death. Iran’s powerful Revolutionary Guards promised “harsh revenge” for Nimr’s death.

Iran blamed the 2015 haj disaster on Saudi incompetence, and Supreme Leader Ayatollah Ali Khamenei on Sept. 5 said some of the Iranians who died had been “murdered” by Saudi Arabia. He said Muslims should not let Saudi rulers escape responsibility for “crimes” he said they had committed in Arab conflicts.

(Reporting by Mostafa Hashem, Noah Browning; Editing by William Maclean, Robert Birsel)

U.S. House votes to allow Sept. 11 families to sue Saudi Arabia

Firefighter walks amid the 9/11 rubble

By Patricia Zengerle

WASHINGTON (Reuters) – The U.S. House of Representatives passed legislation on Friday that would allow the families of victims of the Sept. 11 attacks to sue Saudi Arabia’s government for damages, despite the White House’s threat to veto the measure.

The U.S. Senate in May unanimously passed the “Justice Against Sponsors of Terrorism Act,” known as JASTA. The bill’s passage in the House by voice vote, two days before the 15th anniversary of the attacks that killed about 3,000 people, was greeted with cheers and applause in the chamber.

“We can no longer allow those who injure and kill Americans to hide behind legal loopholes, denying justice to the victims of terrorism,” said Republican Representative Bob Goodlatte, the chairman of the House Judiciary Committee.

Fifteen of the 19 Sept. 11 hijackers who crashed airliners in New York, outside Washington and in Pennsylvania were Saudi nationals. The Saudi government, which strongly denies responsibility, has lobbied against the bill.

Opponents of the measure said it could strain relations with Saudi Arabia and lead to retaliatory laws that would allow foreign nationals to sue Americans for alleged involvement in terrorist attacks.

The White House on Friday reiterated that President Barack Obama would veto the bill. [nW1N12802E]

If Obama carries out that threat and the required two-thirds of both the Republican-majority House and Senate still support the bill, it would be the first time since Obama’s presidency began in 2009 that Congress had overridden a veto.

The House passed the measure by voice vote, without objections or recorded individual votes. That could make it easier for Obama’s fellow Democrats to uphold his veto later without officially changing their positions.

JASTA would remove sovereign immunity, preventing lawsuits against governments, for countries found to be involved in terrorist attacks on U.S. soil. It also would allow survivors, and relatives of those killed in them to seek damages from other countries.

In this case, it would allow suits to proceed in federal court in New York as lawyers try to prove that the Saudis were involved in the attacks on the World Trade Center and Pentagon.

Backers say passage is long overdue. They argue that if Saudi Arabia, or any other government, is innocent of involvement in attacks, they have nothing to fear from the legislation.

A member of the French parliament, Pierre Lellouche, said he would consider such legislation in France, and would anticipate it elsewhere, if the final version of JASTA does not include waivers for countries that are U.S. allies and actively involved in fighting terrorism.

“It may trigger similar acts all over the place, and then you enter into a ‘state of jungle’ where everybody sues everybody,” Lellouche, who runs a parliamentary committee on international law, told reporters on a conference call on Friday.

(Additional reporting by Timothy Gardner and Ayesha Rascoe; Editing by Grant McCool and Will Dunham)

Yemen’s Houthi leader says U.S. provides political cover for Saudi strikes

Saudi-led air stirke

SANAA (Reuters) – The leader of Yemen’s Iran-allied Houthi faction accused the United States of providing logistical support and political cover for Saudi-led air strikes in the 18-month Yemeni conflict.

In his first published interview since the start of the civil war, Abdel-Malek al-Houthi also told the Houthis’ quarterly magazine his group was open to a peaceful solution of the conflict, in which at least 10,000 people have died.

“The United States plays a major role in the aggression … including logistical support for air and naval strikes, providing various weapons … and providing complete political cover for the aggression, including protection from pressure by human rights groups and the United Nations,” he said.

The United States is a key ally of Saudi Arabia, which has come under fire from human rights groups over the air strikes that have repeatedly killed civilians in Yemen.

Saudi Arabia and its allies, which have intervened in the conflict in support of the exiled government of Yemeni President Abd Rabbu Mansour Hadi, see the Houthis as proxies of their archrival Iran.

The Houthis deny this and say Hadi and Saudi Arabia are pawns of the West bent on dominating their impoverished country and excluding them from power.

U.N.-sponsored talks to try to end the fighting collapsed last month and the Houthis and allied forces loyal to former Yemeni president Ali Abdullah Saleh have resumed shelling attacks into Saudi Arabia, Yemen’s large northern neighbor.

In his interview, Abdel-Malek al-Houthi said his opponents did not understand the meaning of real dialogue.

“The hurdle facing negotiations and dialogue is that the other party wants to achieve through the talks what it wanted to achieve through war, not understanding that the path of dialogue and peace is different to the path of war,” he said.

Last month U.S. Secretary of State John Kerry said he had agreed in talks in Saudi Arabia with Gulf Arab states and the United Nations on a plan to restart peace talks for Yemen with a goal of forming a unity government.

Both the Houthis and the exiled government have welcomed the idea of a return to talks since then.

(Reporting By Mohammed Ghobari; Writing By Maha El Dahan; Editing by Gareth Jones)

Oil rally under pressure; record Saudi output offsets U.S. drawdown

Oil field

By Barani Krishnan

NEW YORK (Reuters) – Oil’s near week-long rally was under pressure on Wednesday after an unexpected drawdown in U.S. crude and gasoline stocks was offset by worries that Saudi Arabia was cranking output to record highs even as OPEC talked of ways to ease a global glut.

U.S. West Texas Intermediate (WTI) crude futures <CLc1> were down 5 cents at $46.53 a barrel by 1:03 p.m. EDT (1703 GMT), after trading as much as 21 cents higher.

Brent crude futures <LCOc1> rose by 42 cents to $49.65 a barrel. It reached five-week highs of $49.75 earlier.

WTI’s discount to Brent <WTCLc1-LCOc1> widened to a six-month high, raising the export potential for U.S. crude.

Oil rallied about 11 percent over the past four sessions since Saudi Arabia, the kingpin in the Organization of the Petroleum Exporting Countries, stoked speculation the group was ready to reach an output freeze agreement with non-OPEC producers.

The markets briefly extended gains after the U.S. Energy Information Administration (EIA) said domestic crude inventories fell 2.5 million barrels last week, surprising analysts who had expected a build of 522,000 barrels. [EIA/S]

Gasoline stockpiles also fell 2.7 million barrels, more than expectations for a 1.6 million-barrel drop, the EIA data showed.

But the market’s upside was capped by a Reuters report that said Saudi Arabia could boost crude output in August to new records at 10.8-10.9 million bpd, overtaking Russia’s production, even as OPEC aims for a pact to curb global output.

The Saudis told OPEC they pumped 10.67 million bpd in July, versus their previous record of 10.56 million in June 2015. [OPEC/M]

Saudi-based industry sources said earlier in the year they expected the kingdom’s output to edge near record highs to meet summer demand for power. But they said it was unlikely that Saudi output will flood the market.

“One certain thing to be aware of is the Reuters report that Saudis may increase production to new record highs pushing near 11 million barrels per day,” said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York.

“With the U.S. rig count coming back online for several weeks, even if a freeze did happen we would be talking about freezing at higher levels of output,” Zahir said.

Before last week’s drawdown, U.S. crude stockpiles had risen unexpectedly in three previous weeks. The U.S. oil drilling rig count has also risen without pause for seven weeks, signaling more production ahead. [RIG/U]

Reports of refinery outages in the United States, including a crude unit at Exxon Mobil Corp’s <XOM.N> 502,500 barrel per day (bpd) plant at Baton Rouge in Louisiana, added to the market’s downside. [REF/OUT]

Traders will be on the lookout for a U.S. Federal Reserve statement due at 2:00 p.m. (1800 GMT) to gauge if interest rates are to rise soon.

(Additional reporting by Amanda Cooper in LONDON and Henning Gloystein in SINGAPORE; editing by Jason Neely and Marguerita Choy)