Oil gains 2 pct on U.S. inventory drop, optimism

By Gene Ramos

NEW YORK (BestGrowthStock) – Oil prices rallied more than 2 percent on Wednesday as a surprise drawdown in U.S. crude inventories and economic optimism sparked fresh buying and ended a five-day losing streak.

U.S. crude gained $1.79, or 2.1 percent — the biggest percentage gain since March 29 — to settle at $85.84 a barrel. The day’s high of $86.39 was within sight of an 18-month high above $87 reached last week.

Brent rose $1.43, or 1.8 percent, to end at $86.15 a barrel, trading at a premium to the U.S. benchmark for a third straight day.

The U.S. government’s Energy Information Administration reported that crude stockpiles fell by 2.2 million barrels last week, against forecasts for a 1.5 million-barrel build.

Gasoline stocks fell 1.1 million barrels, more than expected, with weekly demand up nearly 3 percent just after the Easter holidays. (EIA/S: )

Both sets of data contradicted increases reported by industry group American Petroleum Institute on Tuesday, adding fuel to the day’s price jump. (API/S: )

“The petroleum complex was able to revive its bullish footing with the help of a further strong advance in the equity markets and an unexpected draw in crude supplies per the EIA,” said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

“Furthermore, the economic optimism and increased risk appetite that continues to spin off of the ever-rising stock market is weighing on the dollar as its safe haven status is curtailed,” Ritterbusch added.

Oil prices were up early before the mid-morning EIA report, roused by positive corporate earnings and upbeat retail sales data for March — fresh indications that the U.S. economic recovery was taking hold that stoked risk appetite for inventors.

European shares rose to their highest in more than 18 months, led by banks after JPMorgan Chase & Co (JPM.N: ) reported a jump in earnings. Wall Street climbed for the fifth straight day with the Standard & Poor’s 500 Index (.SPX: ) topping 1,200 on stronger company results and retail sales. (.N: )

At the same time, euro zone industrial output rose more than expected in February, data showed on Wednesday.

“It seems that the economies are improving around the world, not only in the emerging markets,” said Daniel Briesemann, analyst at Commerzbank, adding that was “definitely” supportive for oil and commodities.

The U.S. dollar fell against the euro and the yen on improved risk appetite. (USD/: ) (.DXY: )

The Organization of Petroleum Exporting Countries, in its monthly report, said economic optimism was driving prices and that it saw a “very comfortable outlook” for oil fundamentals. The group also nudged up its forecast for 2010 oil demand growth.

Further support for oil prices could come from China’s GDP data to be published on Thursday, analysts said, while a potential appreciation of the yuan would also boost values because it would improve the country’s ability to purchase dollar-denominated commodities.

China’s economy (Read more about the fastest growing economy.) will grow faster in 2010 and 2011 than previously forecast, thanks to a better-than-expected global recovery and strong investment momentum at home, a Reuters poll showed.

In the U.S., investors will glean data on weekly jobless benefit claims to gain further insight into how the labor market is faring as the economy stages a gradual recovery.

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(Additional reporting by Robert Gibbons in New York, Alex Lawler in London, Alejandro Barbajosa in Singapore; editing by Jim Marshall)

Oil gains 2 pct on U.S. inventory drop, optimism