May 7 (Bloomberg) -- Crude oil traded little changed near $56 a barrel after rising 4.6 percent yesterday on a smaller- than-expected increase in U.S. stockpiles and as equities advanced to a four-month high.

Crude supplies rose 605,000 barrels to 375.3 million last week, the highest since 1990, the Energy Department said yesterday. A 2.5 million-barrel gain was forecast by analysts surveyed by Bloomberg News. The Standard & Poor’s 500 Index added 1.7 percent to its highest close since Jan. 6. The Dow Jones Industrial Average rose 1.2 percent.

“The two major catalysts for driving the oil market higher were the EIA inventory report showing much lower builds than expected and the bullish move higher in the major stock indexes,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “No matter what the news these days the trend is up.”

Crude oil for June delivery fell 16 cents to $56.18 a barrel on the New York Mercantile Exchange at 10:41 a.m. in Sydney. Yesterday, the contract climbed $2.50 to settle at $56.34, the highest settlement since Nov. 14. Futures are up 26 percent this year.

U.S. stocks advanced as investors speculated banks don’t need as much capital as had been projected and a report showed employers cut fewer jobs than economists estimated.

ADP Employer Services said U.S. companies eliminated 491,000 positions last month, less than the 645,000 estimated in a Bloomberg News survey of economists.

‘Optimism Builds’

“The macro-economic optimism is continuing to build,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “You would have to be looking at $60 a barrel as the next upside target.”

A government report tomorrow may show that payrolls shrank by 610,000 in April and that unemployment rose to a 25-year high of 8.9 percent, according to a Bloomberg survey of economists.

“Oil is up on indications of an economic recovery,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York. “Prices are trending upward on speculation this will translate into stronger demand.”

A gain in oil supplies on the U.S. West Coast was responsible for the nationwide increase, the Energy Department report showed. Stockpiles there rose 2.31 million barrels to 60.8 million. The region’s distribution system is isolated from the rest of the country. Inventories along the Gulf Coast fell 1.85 million barrels, the first drop in nine weeks.

‘Too Much’ Oil

The industry-funded American Petroleum Institute reported May 5 that U.S. crude oil inventories dropped 1 million barrels last week. API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

“Crude is not trading off its own merit,” said Zachary Oxman, managing director of TrendMax Futures in Encinitas, California. “Fundamentally, on the supply side, there’s too much.”

Gasoline supplies fell 167,000 barrels to 212.4 million in the week ended May 1, the Energy Department report showed. A 550,000-barrel gain was forecast, according to the median of 16 analyst responses in the Bloomberg News survey.

Supplies of distillate fuel, a category that includes heating oil and diesel, rose 2.43 million barrels to 146.5 million last week, the highest since October 2006, according to the department. A 900,000-barrel gain was forecast.

Refinery Rates

Gasoline futures for June delivery climbed 5.58 cents, or 3.5 percent, to $1.628 a gallon in New York, the highest settlement since Oct. 21. Heating oil for June delivery rose 4.51 cents, or 3.2 percent, to end the session at $1.4713 a gallon, the highest since March 26.

Refineries operated at 85.3 percent of capacity last week, up 2.7 percentage points from the week before and the highest since December, according to the report.

Total daily fuel demand in the U.S. averaged 18.2 million barrels in the four weeks ended May 1, down 7.9 percent from a year earlier, according to the department. It was the lowest consumption level for a four-week period since May 1999.

“The market could be getting carried away, especially given the trend in U.S. demand,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York. “At some point the fundamentals of the oil market will have to match the economic picture or prices will fall.”

Brent crude oil for June settlement increased $2.03, or 3.8 percent, to end yesterday’s session at $56.15 on London’s ICE Futures Europe exchange, the highest since Nov. 10.

To contact the reporter on this story: Ben Sharples in Melbourne bsharples@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: May 6, 2009 20:45 EDT