Oil settles 3 pct higher after inventory fall

NEW YORK Wed Jul 15, 2009 4:36pm EDT

Steam and other emissions are seen coming from funnels at an oil refinery in Melbourne July 7, 2009. REUTERS/Mick Tsikas

Steam and other emissions are seen coming from funnels at an oil refinery in Melbourne July 7, 2009.

Credit: Reuters/Mick Tsikas

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NEW YORK (Reuters) - Oil prices settled over 3 percent higher on Wednesday, supported by falling U.S. crude oil inventories, news of quarterly corporate results that were better than expected and some signs of economic recovery.

U.S. crude settled at $61.54 a barrel, up $2.02 or 3.39 percent after reaching a high of $61.98 a barrel.

London Brent crude settled at $63.09 a barrel, up $2.23.

Crude stocks in the United States, the world's top oil consumer, fell last week by a greater-than-expected 2.8 million barrels to 344.5 million barrels, the U.S. Energy Information Administration said.

"The larger-than-expected crude stock draw of 2.8 million barrels is attracting much attention so far in forcing values to fresh highs for the day," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

Oil prices also received support from gains in U.S. stocks, which rose after news of better-than-expected results from Intel Corp (INTC.O) and Goldman Sachs (GS.N).

Equities were also supported by data showing U.S. industrial output declined more slowly in June, while New York state's factory survey was the strongest in more than a year.

The U.S. Federal Reserve said on Wednesday that the economy may not contract as sharply as previously expected.

The data boosted appetite for risk and spurred investors out of the U.S. dollar and into equities and commodities. The Reuters-Jefferies CRB Index of 19 commodities rose by about 1.5 percent by mid-afternoon.

The U.S. dollar fell to a one-month low against a basket of six major currencies, while the euro rose 1 percent versus the greenback.

FUEL DEMAND SLUGGISH

Although upbeat quarterly results helped boost stock markets and the energy complex on Wednesday, doubts lingered about the strength of energy demand due to swelling stockpiles of refined oil products.

The EIA data showed an increase in gasoline stockpiles in the week to July 10, which included the July 4 Independence Day holiday, when the summer driving season typically peaks.

Gasoline stocks climbed 1.5 million barrels to 214.6 million barrels, surpassing analysts' forecasts, despite the Fourth of July holiday weekend.

"We should be focusing on gasoline, and gasoline inventories increased going into the 4th of July holiday," said Phil Flynn, an analyst at PFGBest Research in Chicago.

"Obviously, that raises questions about the demand side of the equation, (and) evidence seems to be suggesting that it was not very good," Flynn said.

Weak demand for fuel due to the ailing economy lifted stockpiles of refined products, with distillate stocks reaching a 25-year high last week, according to the EIA data.

Nigeria's main militant group agreed to a 60-day ceasefire, but traders had yet to be convinced it would translate into a more stable environment for oil production.

Doubts over the sustainability of any truce in Nigeria were amplified after Henry Okah, a militant leader released by the government on Monday, told Reuters he believed other militants would keep attacking the country's oil industry.

(Additional reporting by Robert Gibbons in New York and Joe Brock and Alex Lawler in London; Editing by David Gregorio)

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