September 5, 2013 / 5:26 AM / 4 years ago

CORRECTED-UPDATE 8-Crude oil up but gains capped by worries about Fed

(Corrects source of private employer jobs data to ADP, not U.S. Labor Department; error first appeared in Update 7; makes clear in paragraph three that a U.S. Senate panel voted on Wednesday to support a military strike on Syria.)

* U.S. Senate committee votes in favor of military strike

* ISM services index rose to highest level in 8 years

* U.S. jobless claims fall to near five-year low

* U.S. crude stocks fall - EIA

* Coming up: U.S. EIA crude stocks data; 1500 GMT

By Anna Louie Sussman

NEW YORK, Sept 5 (Reuters) - Oil futures rose on both sides of the Atlantic on Thursday as bullish U.S. economic data and a drawdown in U.S. crude inventories implied increasing use in the world’s biggest oil consumer.

Gains were limited by concerns that the strong economic indicators could move the Federal Reserve closer to unwinding its massive stimulus program that has boosted commodities prices.

Brent held above $115 early in the session as investors worried that supply disruptions could persist in the Middle East after a U.S. Senate panel voted on Wednesday to support a military strike on Syria.

Brent and U.S. crude gave back some gains after strong U.S. economic data on the service sector and employment data suggested that the world’s biggest economy could be strong enough to withstand a winding down of stimulus by the Federal Reserve, but reversed course and remained buoyant later in the session.

“The economic data that came out at 10 a.m. was so positive that it makes the argument for tapering” of Fed stimulus, said John Kilduff, partner at Again Capital LLC in New York, who noted gold prices had dropped as well on the service sector news as markets “anticipate the loss of monetary support.”

The Institute for Supply Management reported that the pace of growth in the U.S. services sector accelerated in August to its fastest in almost eight years. The payrolls processor Automatic Data Processing (ADP) and Moody’s Analytics said private employers added 176,000 jobs in August, while the Labor Department said jobless claims last week fell to a near five-year low.

U.S. crude prices also drew support from separate data showing U.S. crude stocks fell by 1.84 million barrels, including a 1.83-million-barrel draw at Cushing, Oklahoma, which is the delivery point for U.S. crude futures.

“The U.S. is making all this gasoline to export to Europe to make up for all the problems they’re having there,” said Phil Flynn, an analyst with the Price Futures Group in Chicago, Illinois, referring to disruptions in Libya and other regions which supply crude oil to Europe.

Brent crude rose 13 cents to $115.04 a barrel by 1:24 p.m. EDT (1724 GMT) after an earlier high of $115.55.

U.S. oil gained 81 cents to $108.04 a barrel after earlier reaching $108.54.

Last week, Brent rallied to a six-month high and U.S. crude rallied to a two-year high. Both contracts have retreated slightly as investors grew less nervous that a possible U.S.-led military strike on Syria would lead to wider regional strife.

The Senate Foreign Relations Committee voted in favor of a resolution that sets a 60-day limit on any engagement in Syria, with a possible 30-day extension, and bars the use of U.S. troops for ground combat.

While Syria is not a big oil producer, markets are already struggling to cope with the loss of supplies from a region that pumps a third of the world’s crude. Outages in the Middle East and Africa have surpassed 3 million barrels per day, or about 3.5 percent of global demand.

Libya’s oil exports have shrunk to just over 10 percent of capacity from three out of a possible nine ports as armed groups have tightened their grip on oil facilities. (Additional reporting by Lin Noueihed in London, Manash Goswami in Singapore; editing by Jim Marshall, David Gregorio and Bob Burgdorfer)

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