Oct. 16 (Bloomberg) -- Crude oil climbed to a one-year high as increasing U.S. industrial production bolstered optimism that the economic recovery will accelerate.

Oil gained for a seventh day after a Federal Reserve report showed a 0.7 percent increase in output at factories, mines and utilities last month. Futures climbed 9.4 percent this week, the most in almost two months, after the Department of Energy said U.S. gasoline inventories fell by 5.23 million barrels last week, the biggest drop in a year.

“There continues to be optimism about an economic rebound,” said Paul Crovo, a Philadelphia-based oil analyst with PNC Capital Advisors. “Prices have been rising on speculation that this will lead to a tightening of the supply- demand balance going forward.”

Crude oil for November delivery rose 95 cents, or 1.2 percent, to $78.53 a barrel at 2:47 p.m. on the New York Mercantile Exchange, the highest settlement since Oct. 15, 2008. Prices are up 76 percent this year.

Oil breached technical resistance at its 200-week moving average, $75.08, and positioned itself to rally to $85 a barrel, according to technical analysis by Tom Fitzpatrick, chief technical analyst at Citi FX, part of Citigroup Capital Markets in New York.

Futures last crossed the 200-week moving average a year ago on their way down to $32.40 in December, the lowest price since February 2004. Before that, crude spent more than five years above the average as it rallied to a record $147.27 a barrel in July 2008.

Industrial Production

The increase in industrial activity exceeded every forecast of economists surveyed by Bloomberg News and followed gains of 1.2 percent in August and 0.9 percent in July, Federal Reserve figures showed today.

“We’ve shifted into a new, higher range,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, consultant. “We don’t need much fundamental input right now to send prices higher because we’ve got a lot of momentum. It looks like a lot of institutional money has poured into the market since we climbed above $75.”

U.S. gasoline inventories fell to 209.2 million barrels in the week of Oct. 9, a four-week low, the Energy Department reported yesterday. Stockpiles of distillate fuel, a category that includes heating oil and diesel, declined 1.08 million barrels to 170.7 million.

The supply reduction “completely reverses the cumulative effect of the previous two weeks of softer data,” Barclays Capital analysts led by Paul Horsnell said in a report. “The transition to a $70-to-$80 range is now in full cry.”

Ample Stockpiles

Supplies of crude oil rose 334,000 barrels to 337.8 million, the government report showed. The gain left stockpiles 9.6 percent above the five-year average for the period. Gasoline inventories were 4.3 percent above average last week and distillate supplies were 30 percent higher.

U.S. refineries operated at 80.9 percent of capacity, down 4.1 percentage points from the previous week and the lowest since mid-April, the report showed. Refiners often idle plants in October for repairs and upgrades as gasoline demand eases and before heating-oil consumption picks up with the Northern Hemisphere winter.

“I’m a bit befuddled by how the market responded to yesterday’s gasoline number,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The decline was due to a reduction in refinery activity. If demand were to pick up, there’s plenty of spare capacity that can be brought on line.”

Nigerian Unrest

Prices also increased after Nigerian rebels ended a cease fire. The Movement for the Emancipation of the Niger Delta started attacking at midnight, Jomo Gbomo, a spokesman, said in an e-mailed statement. He didn’t elaborate. Rebel attacks on oil infrastructure have curbed Nigeria’s exports by more than 20 percent since 2006.

Brent crude oil for December settlement increased 76 cents, or 1 percent, to end the session at $76.99 a barrel on the London-based ICE Futures Europe exchange. It was the highest settlement since Oct. 13, 2008. November futures expired yesterday at $74.45 a barrel.

Oil analysts and traders were split over whether oil prices will rise or fall next week. Twelve of 31 respondents in a Bloomberg News survey, or 39 percent, said futures will drop through Oct. 23. Another 12 predicted an increase.

“We are likely to remain reactive in nature next week,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “If the equity market is strong we will rise and if equities are down oil will move lower.”

Oil volume in electronic trading on the Nymex was 512,232 contracts as of 2:55 p.m. in New York. Volume totaled 776,371 contracts yesterday, 36 percent higher than the average over the past three months. Open interest was 1.28 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: October 16, 2009 16:29 EDT