Oil settles at record high over $78

NEW YORK (Reuters) - U.S. oil surged more than $1 on Tuesday to hit a record settle above $78 a barrel on expectations rising refinery demand will further drain inventories in top consumer the United States.

U.S. crude CLc1> settled up $1.38 at $78.21 a barrel, eclipsing the previous settlement record of $77.03 from July 14, 2006, when oil traded up to $78.40 during intraday activity. U.S. oil traded as high as $78.28 on Tuesday.

London Brent crude LCOc1> rose $1.31 to $77.05.

"This market just doesn't want to give up ... the bull trend continues," said Tom Bentz, analyst at BNP Paribas Commodity Futures in New York.

Crude oil prices have surged over the past month on concerns supplies may be stretched to keep up with global demand growth, especially as refinery utilization in the United States rebounds.

Analysts say the drawdown of oil stockpiles at the Cushing, Oklahoma, delivery point of the New York Mercantile Exchange's crude contract as regional refiners return from a series of unplanned outages, has been especially supportive.

"We have been seeing refiners coming back, they are making product and the market is looking at these draws at Cushing," said Stephen Schork, president of The Schork Report.

Weekly U.S. government statistics are expected to show another decline in crude stocks on Wednesday. Analysts polled by Reuters forecast a 700,000 barrel drop in crude inventories.

Earlier in the day, support came from a global stock rally, before concerns about deteriorating credit markets resurfaced and pushed down U.S. stock indexes. Strong copper and natural gas futures also helped push oil higher.

OPEC, SPECULATORS SUPPORT

Some analysts have forecast oil prices could continue to climb unless the Organization of Petroleum Exporting Countries (OPEC) ramps up production.

"Statements from OPEC officials still do not point to an early increase in production and there are concerns of a relatively tight supply situation later this year," said David Moore, an analyst at Commonwealth Bank of Australia.

OPEC, which pumps more than a third of the world's crude oil, agreed at two meetings late in 2006 to cut supplies by a total 1.7 million barrels per day. The producer group is scheduled to meet again on September 11, but some ministers have said they see no reason to change policy.

The rise in oil prices has drawn in additional money from institutional investors, analysts said.

"You are seeing a lot more money coming in from the long-only index funds," said Schork.

This year's Atlantic hurricane season has so far spared the United States' oil producing and refining region, but the market is keeping an eye on the progress of a gathering storm.

Tropical Storm Chantal formed on Tuesday in the northern Atlantic but did not pose a threat to land, the U.S. National Hurricane Center said in an advisory.

However, a tropical wave 600 miles east of the Southern Windward Islands had potential to develop into a storm in the coming days, forecasters said. The low-pressure area was moving at 15 mph westward toward the Caribbean.

(Additional reporting by Janet McBride in London and Fayen Wong in Sydney)