Nov. 4 (Bloomberg) -- Crude oil closed above $80 a barrel after a government report showed that U.S. inventories unexpectedly dropped as imports declined to a two-month low.

Stockpiles of crude fell 3.94 million barrels to 335.9 million last week, the Energy Department said today. A 1.5 million-barrel increase was forecast, according to the median of responses in a Bloomberg News survey of analysts. Oil also advanced as equities gained and a weaker U.S. dollar bolstered the appeal of commodities as an alternative investment.

“The inventory report today was definitely supportive,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “Prices were already up because of the weak dollar and rising stocks. These numbers just added to the upward momentum.”

Crude oil for December delivery rose 80 cents, or 1 percent, to settle at $80.40 a barrel at 3:04 p.m. on the New York Mercantile Exchange. It was the highest close since Oct. 23. Prices are up 80 percent this year.

“It is very hard to justify oil going from $30 to above $80 based only on the fundamentals of supply and demand,” Nouriel Roubini, the economist who predicted the global economic crisis, said today at the Inside Commodities Conference in New York. Oil touched $32.40 in December.

Roubini and Stephen Schork, president of consultant Schork Group Inc. of Villanova, Pennsylvania, both told the conference prices are in a bubble.

Fair Market Value

“I have no problem with the notion that $75 or $80 a barrel oil is a fair market value in a healthy economy, but we’ve got ahead of ourselves,” Schork said at the conference.

Total fuel demand over the four weeks ended Oct. 30 was 4.5 percent lower than the same period a year earlier, according to the Energy Department.

“Inventories are down because nobody wants to have excess supply on hand,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “The drop is not due to a tightening market.”

Imports of crude oil fell 764,000 barrels, or 8.6 percent, to 8.13 million barrels a day, the lowest level since Aug. 14, the Energy Department said.

“This is completely an import story,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “If it weren’t for the drop in refinery runs, supplies would have dropped even more.”

Refinery Operation

Refineries operated at 80.6 percent of capacity, down 1.2 percentage points from the previous week and the lowest rate since the week ended April 10, the report showed.

Gasoline inventories fell 287,000 barrels to 208.3 million last week. A 400,000-barrel increase was forecast, according to the median of 17 responses in the Bloomberg News survey. Distillate supplies dropped 378,000 barrels to 167.4 million, the report showed. A 1 million-barrel decline was forecast.

“One week does not necessarily a trend make, only time will tell,” said Chip Hodge, who oversees a $9 billion natural- resource bond portfolio as senior managing director at MFC Global Investment Management in Boston. “What it does do is add fuel to the fire. The market was already moving higher.”

Oil also rose as Federal Reserve policy makers kept their overnight lending rate at between zero and 0.25 percent, where it’s been since December. U.S. businesses are “still cutting back on fixed investment and staffing, though at a slower pace,” the Federal Open Market Committee said in a statement today after meeting in Washington.

The Dollar Index, which tracks the currency against the U.S.’s biggest trading partners, dropped 0.9 percent today.

“Whenever the dollar is weak, you are going to see stronger commodities,” Hodge said.

Gold Record

Gold climbed to a record, extending this week’s rally, on speculation that central banks and investors will buy the metal to hedge against a falling dollar. Gold futures for December delivery touched $1,096.50 an ounce on the New York Mercantile Exchange’s Comex division. They rose $2.40, or 0.2 percent, to settle at $1,087.30 at 1:41 p.m. in New York, a closing high.

U.S. stocks added to a global equity rally today. Aetna Inc. and Cigna Corp. gained at least 6 percent on speculation Republican victories in yesterday’s elections will bolster opposition to legislation overhauling health care.

The Standard & Poor’s 500 Index added 0.3 percent to 1,048. The Dow Jones Industrial Average increased 0.3 percent to 9,800.02.

Brent crude for December settlement rose 78 cents, or 1 percent, to $78.89 a barrel on the London-based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 536,226 contracts as of 2:49 p.m. in New York. Volume totaled 578,512 contracts yesterday, 1.7 percent higher than the average over the past three months. Open interest was 1.2 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: November 4, 2009 16:01 EST