Oil climbed in New York to the highest in two years after U.S. crude inventories unexpectedly declined and investors bet that demand is increasing in China, the world’s biggest energy user. Crude gained for a second day after the Energy Department said stockpiles fell 3.27 million barrels last week to 364.9 million. Supplies were forecast to increase 1.5 million barrels, according to a Bloomberg News survey of analysts. Chinese refiners processed 12 percent more crude in October than a year earlier, according to China Mainland Marketing Research Co. “The market perception is that unbridled Chinese demand will continue to support oil,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “But there are still question marks about whether fundamentals elsewhere can durably keep prices this elevated.” Crude for December delivery rose as much as 74 cents, or 0.8 percent, to $88.55 a barrel on the New York Mercantile Exchange. That’s the highest price since Oct. 9, 2008. The contract was at $88.34 at 10:44 a.m. London time. Brent crude for December settlement rose as much as 74 cents, or 0.8 percent, to $89.70 a barrel on the ICE Futures Europe exchange in London. China Refining China’s state oil companies are boosting processing in a bid to ease diesel shortages in the country’s south caused by factories and farmers using more fuel. China Petroleum & Chemical Corp., the nation’s largest refiner, increased production to a record in October, parent China Petrochemical Corp. said on Nov. 4. New York futures are up about 2 percent this week and have advanced every day this month except for Nov. 9. Oil has rallied more than 11 percent in 2010 as depleting fuel stockpiles in the U.S., the largest crude consumer, signaled a recovery in demand. Distillate fuel inventories, including heating oil and diesel, fell 4.97 million barrels to 159.9 million, the seventh weekly drop, according to yesterday’s Energy Department report. That’s the biggest volume decrease since February 2007. Supplies were forecast to decline 2 million barrels, based on the Bloomberg News survey. Gasoline stockpiles dropped 1.92 million barrels to 210.3 million, the lowest level since November 2009, the report showed. A 1 million-barrel drawdown was projected. Refineries operated at an average of 82.4 percent of capacity, up 0.6 percentage point from the previous week, the department said. Crude imports fell 5.7 percent to 8.09 million barrels a day, the lowest rate since January. Contango May End Oil supplies at Cushing, Oklahoma, the delivery point for New York futures, declined 1.75 million barrels to 31.8 million, the biggest volume drop since September 2009. Stockpiles are at the lowest level since the week ended April 2. The longest period of contango in the U.S. oil market may end as storage capacity at Cushing expands by more than a quarter. New York crude traded at $1.73 a barrel less than the six-month contract, compared with $9.88 in May. This contango, in which prompt oil is cheaper than for later delivery, has averaged $2.70 in the past five years. Oil may rise further because prices have yet to reach a Fibonacci retracement target used by technical traders, according to Ken Hasegawa, a commodity derivative sales manager at Newedge Group in Tokyo. Futures are below $89.84 a barrel, the halfway point between the all-time high of $147.27 traded in July 2008 and a low of $32.40 in December that year. “Until the crude market goes up to the 50 percent rebound line, it’s still possible to go to the upper side,” Hasegawa said. “Brent is very near to $90 a barrel. That is a target technically.” To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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