UPDATE 7-U.S. oil hits two-month high on inventory drop

Wed May 21, 2014 4:07pm EDT

Related Topics

* U.S. crude stocks fall 7.2 million barrels -EIA

* U.S. crude imports lowest since 1997

* Libya's big western fields shut, new fighting breaks out

* Russia pulls back from Ukraine border

* Federal Reserve talks tightening monetary policy (Updates with settlement prices, adds analyst commentary)

By Elizabeth Dilts

NEW YORK, May 21 (Reuters) - U.S. oil reached a one-month high on Wednesday, rising nearly $2 a barrel, after the government reported a large draw in commercial crude stocks, while renewed fighting in Libya that kept output low boosted Brent prices.

U.S. crude stocks fell last week as imports slumped to the lowest since 1997, while gasoline and distillate inventories rose, the U.S. Energy Information Administration reported.

Crude inventories fell 7.2 million barrels last week, while net crude imports fell 658,000 barrels per day (bpd) to a record low of 6.4 million bpd.

The industry group American Petroleum Institute reported a 10 million barrel draw late on Tuesday, which helped oil make a modest rally overnight that extended after the EIA report.

Brent crude settled 86 cents up at $110.555 a barrel. U.S. crude rose by as much as $1.96 to touch an intra-session high of $104.29 a barrel. It settled up $1.74 at $104.07 a barrel.

The strength in U.S. crude pulled U.S. gasoline prices higher in spite of a nearly 1 million-barrel build last week. U.S. gasoline RBOB futures settled 3 cents up at $2.9942 a gallon.

"We had a massive drawdown that started the movement on the API data yesterday," Bill Baruch, senior market strategist at iitrader.com. "There's fear with Libya, there's fear with Russia, we're heading into a long weekend, and all of that leads to a path of zero resistance higher."

Explosions and fighting were heard in Tripoli on Wednesday, two days after gunmen stormed parliament amid a surge in violence in the OPEC member country.

National output in Libya edged higher to 230,000 barrels per day (bpd), up from 210,000 bpd on Monday but still a fraction of the 1.6 million bpd the country produced before the 2011 war.

Two large oilfields were still shut 10 days after the government said protests there were over.

Ukraine, where presidential elections are set to be held Sunday, remained a background support for Brent. Tensions appeared to be easing as Russia announced it has drawn back troops from three provinces along the Ukraine border.

A part from geopolitical risk, U.S. oil got a bump from gains in equities. The U.S. stock market rose after minutes from the Federal Reserve's latest meeting showed central bankers have discussed the eventual tightening of monetary policy but made no decisions on which tools to use.

Floor trading will be closed on Monday and there will be no settlement on the New York Mercantile Exchange due to the U.S. Memorial Day holiday. (Additional reporting by Alex Lawler in London and Jacob Gronholt-Pedersen in Singapore; editing by Jane Baird, Keiron Henderson, Cynthia Osterman and Chizu Nomiyama)

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