Oil Rises as U.S. Crude Stockpiles May Shrink for a Fifth Week

Oil rose from a two-day low in New York as investors bet declining stockpiles and signs of economic recovery in the U.S. indicated fuel demand is strengthening in the world’s biggest crude consumer.

Futures climbed as much as 0.9 percent after the American Petroleum Institute said inventories dropped 3.2 million barrels last week, more than a median 2.5 million forecast in a Bloomberg News survey before an Energy Department report today. Prices also advanced before data tomorrow that may show the U.S. added more jobs in June. Morgan Stanley said it is bullish on oil in the second half of 2011 as production capacity falls.

“The inventory numbers and euphoric buying is probably what’s helping crude higher,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney, who predicts oil will average $100 a barrel this year. “The big numbers are the employment data. The market is focused on positive numbers and if they don’t get it, it’ll be the last nail in the coffin. China is slowing and Europe is a mess.”

Crude for August delivery gained as much as 83 cents to $97.48 a barrel in electronic trading on the New York Mercantile Exchange. It was at $97.28 at 2:13 p.m. Singapore time. Yesterday, the contract fell 24 cents to $96.65, the lowest since July 1. Prices are 31 percent higher in the past year.

Brent crude for August settlement on the London-based ICE Futures Europe exchange increased 44 cents, or 0.4 percent, to $114.06 a barrel. The European benchmark contract was at a premium of $16.76 to U.S. futures. The difference reached a record $22.29 on June 15.

Brent Spread

Brent’s premium to U.S. crude may widen to at least $40 a barrel between now and the middle of 2012, according to Citigroup Global Markets Inc. Increased output from western Canada and the U.S. mid-continent has led to near-record supplies at Cushing, Oklahoma, the delivery point for New York-traded West Texas Intermediate, the bank said in a note yesterday.

While prices of light, sweet crude may decline in “coming weeks”, Morgan Stanley remains bullish on the outlook for oil in the second half of the year, the bank said in an e-mailed report. Goldman Sachs Group Inc. today reiterated its long-trading recommendation for Brent futures.

U.S. crude inventories decreased 0.7 percent from 359.5 million barrels in the week ended July 1, according to the median estimate of 15 analysts surveyed. That would be a fifth weekly drop, the longest decline since January.

U.S. Stockpiles

Gasoline stockpiles probably slid 150,000 barrels from 213.2 million last week, based on the survey. Distillate-fuel supplies, a category that includes heating oil and diesel, are expected to have risen 900,000 barrels from 142.3 million.

The Energy Department is scheduled to release its weekly report at 11 a.m. in Washington, a day late because of the Fourth of July holiday.

Oil may extend gains in New York if futures settle above technical resistance marked by a Bollinger Band, according to data compiled by Bloomberg. The middle band on the daily chart is at $96.97 a barrel today. A breach of resistance usually means prices will rise further.

Nonfarm payrolls climbed by 100,000 workers after an increase in May that was the smallest in eight months, according to the median forecast of economists surveyed before a Labor Department report tomorrow. The jobless rate probably held at 9.1 percent.

Oil also gained today as Japanese machinery orders climbed at the fastest pace in fourth months, as companies increased spending to rebuild after the March 11 earthquake. Japan is the world’s third-largest crude user.

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