Oil rises above $70 after U.S. fuel stock drop

NEW YORK (Reuters) - U.S. oil topped $70 a barrel on Thursday for the first time in nearly 10 months following a sharp drop in gasoline stocks during the peak summer driving demand in the world's biggest consumer.

A slowdown in gasoline imports drained U.S. inventories of motor fuel by 700,000 barrels last week, countering market expectations of a 1.2 million barrel rise.

U.S. government data showed a steep drop in inventories at the Cushing, Oklahoma, delivery point for the NYMEX contract, narrowing the discount to London Brent.

The draws helped push U.S. crude up 68 to $69.65 a barrel by 1812 GMT after trading up to $70.52 earlier.

London Brent crude, which has been a better gauge of global prices recently, was up 3 cents at $70.56 a barrel.

Inventories of crude at Cushing fell by 1.4 million barrels last week, while the country's total stocks rose by 1.6 million barrels to a fresh nine-year high, according to U.S. Energy Information Administration data released on Wednesday.

"Oil prices have moved higher on a supportive set of U.S. oil inventory data" said Barclays Capital.

"The rapid decline in Cushing crude oil stocks suggests further gains for WTI relative to Brent crude."

U.S. crude has been trading at an atypical discount to Brent since February, weighed down by higher inventories, and analysts say $70 may be a pivotal level for U.S. crude.

"Last week lower refinery runs were bullish, this week higher refinery runs are bullish," said Olivier Jakob of Petromatrix.

"In our view, technical trading around the $70/barrel barrier remains the predominant driver."

EIA data showed a year-on-year deficit of distillate stocks, which include heating oil, deepened after supplies fell 2.3 million barrels.

"The fall in gasoline stocks is due mainly to a lack of imports, not domestic production, which has been ramping up," said Tobin Gorey, commodities strategist at the Commonwealth Bank of Australia.

"With the refineries coming back online, it seems unlikely that the inventories will keep falling."

Oil, along with other commodity and financial markets, fell earlier this week on concerns that troubles in U.S. mortgage securities could raise borrowing costs and make investors avoid higher-risk markets.