Oil Rises Above $71 Amid Falling Inventories

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Oil prices rose above $71 a barrel Thursday, halting this week's decline as falling U.S. crude inventories suggested demand is improving in the world's largest economy.

Benchmark crude for July delivery was up 14 cents to $71.17 a barrel by mid-afternoon in Europe in electronic trading on the New York Mercantile Exchange. On Wednesday, it rose 56 cents to settle at $71.03.

Earlier in the session, the Nymex contract peaked at $71.73, but fell back as the dollar strengthened and drew investors out of commodities, usually a safeguard against inflation and dollar weakness.

Prices dipped below $70 a barrel earlier this week from an eight-month high near $73 the previous week on investor concern that the economy may not recover as fast as some traders anticipate.

The Energy Information Administration said Wednesday that crude inventories fell last week by 3.9 million barrels, or 1.1 percent, and have dropped 10.8 million barrels over the last four weeks.

While U.S. inventories are still bloated with the most oil in nearly 16 years, analysts see the recent drawdowns as a sign that gasoline demand is recovering.

"The tightening of the U.S. market is continuing," Barclays Capital said in a report. "U.S. gasoline demand continues its clear improving trend."

U.S. retail gasoline prices have risen 50 straight days as demand during the summer holiday season exceeded refiners' expectations.

"Four-week gasoline demand was up 1.14 percent, confirming last week's foray into positive territory and showing the first genuine sign that the economy is really improving," said U.S. energy consultancy Cameron Hanover. "Even with millions not going to work, Americans are using more gas again."

Oil has doubled since March on investor optimism that the global economy is on the road to recovery from its worst slowdown in decades. Indicators this week suggest growth remains sluggish, but some analysts are anticipating a better economic environment later this year.

"We continue to expect an improvement in fundamentals to begin to take hold in the next several months," Goldman Sachs said in a report. "Recent data points have already begun to suggest some stabilization."

Goldman said it expects the prices of oil to rise to $85 a barrel in six months and reach $95 by the end of 2010.

Analysts also mentioned rebel attacks on oil installations in Nigeria, Africa's largest crude producer, as supporting oil prices.

In other Nymex trading, gasoline for July delivery was down 0.18 cent to $2.0308 a gallon and heating oil fell 0.86 cent to $1.8544. Natural gas for July delivery rose 5.3 cents to $4.306 per 1,000 cubic feet.

In London, Brent prices fell 14 cents to $70.71 a barrel on the ICE Futures exchange.
    
Associated Press writer Alex Kennedy in Singapore contributed to this report.
     
Copyright 2009 by The Associated Press.  All Rights Reserved.

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