Oil scales 25-month high on record China demand

LONDON Thu Nov 11, 2010 6:07am EST

LONDON (Reuters) - Oil climbed to 25-month highs above $88 a barrel on Thursday after strong industrial output boosted Chinese demand to a record high and fuel stocks in the world's top oil consumer the United States fell sharply.

U.S. crude for December rose 51 cents to $88.32 a barrel by 1040 GMT (5:40 a.m. ET), after earlier touching $88.55, its highest since October 2008. ICE Brent rose 34 cents to $89.30 a barrel after touching more than a two-year high earlier.

China's industrial production grew 13.1 percent in October from a year earlier, sending oil use in the world's second biggest consumer to a record 8.92 million barrels per day (bpd).

Crude inventories in the U.S. unexpectedly fell last week, while declines in fuel stockpiles exceeded forecasts, government data showed on Wednesday.

"There was a downwards draw in stocks in the United States and in countries like China there seems to be much better demand," said Christoper Bellew, a broker at Bache Commodities, adding, "I don't think it's the feeding frenzy we had in 2008 but we are possibly in a range between $80-$95 a barrel."

The market shrugged off a stronger dollar on Thursday and weaker equities in a sign that the market is once again focusing on its own fundamentals of supply and demand. .EU .DXY

ABOVE $90?

Oil prices are on course to have risen in eight of the last nine sessions, pushing them further above a previous range of $70-$80 a barrel where they have mostly traded for a year.

"We think prices are on their way for a test of the $90 mark, at least in the Brent market," said Stefan Graber, a commodities analyst with Credit Suisse in Singapore.

Other traders and analysts also expected a breach of $90 a barrel but did not expect the rally to push prices as far as $100 a barrel.

"I think you'll probably touch $90 maybe break above it and then it should slow down and then come off a little bit," said Andrey Kryuchenkov, commodities strategist at VTB Capital.

An Energy Information Administration (EIA) government report on Wednesday showed a 3.3 million-barrel drawdown in U.S. crude inventories last week, compared with forecasts for a 1.4 million-barrel gain.

Stocks of distillates including diesel and heating oil dropped by 4.97 million barrels, led by a 16 percent gain in distillate demand over the past four weeks compared with year-ago levels.

U.S. economic growth showed more tentative signs of improving on Wednesday as jobless benefit claims hit a four-month low last week and the international trade gap narrowed in September.

(Additional reporting by Isabel Coles and Alejandro Barbajosa in Singapore; editing by Keiron Henderson)

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