By Christian Schmollinger and Ann Koh May 26 (Bloomberg) -- Oil rose in New York after an industry-funded report showed a drop in U.S. gasoline stockpiles, renewing optimism of increasing fuel demand in the world’s largest crude consumer. Oil pared part of yesterday’s 2.1 percent decline after the American Petroleum Institute said gasoline supplies fell 3.19 million barrels last week. Crude has dropped 20 percent since reaching $87.15 a barrel on May 3, the highest intraday price in more than a year. U.S. equities erased losses in the final minutes of trading, with the Dow Jones Industrial Average closing 0.2 percent lower after plunging 292 points. “The drop in the gasoline inventories has brought optimism back to the market,” said Serene Lim, an energy and commodity strategist with Australia & New Zealand Banking Group Ltd. “Crude prices have been oversold the past two weeks so that is opening up some buying opportunities.” Crude oil for July delivery rose as much as $1.38, or 2 percent, to $70.13 a barrel in electronic trading on the New York Mercantile Exchange, and traded at $69.27 at 2:03 p.m. Singapore time. Yesterday, the contract fell $1.46 to $68.75 after dropping as much as 4.4 percent. “A drop in gasoline supplies almost always gives the energy markets reason to trade higher,” said Mike Sander, an investment adviser a Sander Capital Advisors in Seattle. “Oil is also up after the Dow Jones rallied in trading at the end of its session. With such a positive reversal, the price of oil received a boost.” Dollar Gains Oil declined yesterday as the dollar rose against the euro, reducing the appeal of commodities to investors. The shared currency fell as the International Monetary Fund said Spain has been too slow to strengthen its banking system. The euro slipped 0.6 percent to $1.2271 at 2:03 p.m. Singapore time, its third day of losses. The Standard & Poor’s 500 Index rose less than 0.1 percent after recovering from a 3.1 percent drop as U.S. stocks helped check a global retreat in equities. Brent crude oil for July settlement gained as much as $1, or 1.4 percent, to $70.55 a barrel, and traded at $69.77 at 2:03 p.m. Singapore time. “The price of crude reflects to some extent optimism and the outlook of the economy,” said John Vautrain, senior vice- president at consultants Purvin & Gertz Inc. in Singapore. “It’ll be messy if confidence does not return.” Alaska Pipeline Alyeska Pipeline Service Co., whose biggest shareholder is BP Plc, shut the Trans-Alaska system yesterday after a leak of “several thousand barrels.” The spill occurred about 10:20 a.m. local time as Alyeska tested a fire command system at pump station No. 9 near the town of Delta Junction, Alaska, the company said in a statement. During the test, a power failure led a valve to fail, causing oil to drain into a tank that overflowed into a secondary containment area. The U.S. Energy Department report to be out later today may show gasoline inventories increased by 300,000 barrels in the seven days ended May 21, according to the median of 18 analyst estimates in a Bloomberg News survey. The figures will be released at 10:30 a.m. Washington time. U.S. crude supplies rose by 616,000 barrels last week, according to the API. The Energy Department today may show supplies rose by 250,000 barrels, according to the survey. Cushing Stockpiles The API numbers may contain some bullish signs even as overall inventories gain, according to The Schork Group Inc.’s daily report. Supplies at Cushing, Oklahoma, the delivery point for New York oil futures, fell by 940,000 barrels, the newsletter said, citing the industry group’s data. Last week’s Energy Department report showed Cushing stockpiles rose to a record 37.9 million barrels. Any decline there could be positive for the oil market as the large inventories have pushed down the July contract relative to later futures, the Schork Report said. “Any dip in Cushing could be quite a relief to the oil market,” said ANZ’s Lim. “That’s actually weighed on the front month crude prices.” New York oil futures for delivery in one month are trading at a discount of $3.85 a barrel today compared with supplies for six months later. That’s down from a price difference of $9.88 on May 13. The American Petroleum Institute collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires reports to be filed with the Energy Department for its weekly survey. Oil-supply totals from the API and DOE moved in the same direction 75 percent of the time over the past four years, according to data compiled by Bloomberg. To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net;

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