Oil rose as investors bet declining stockpiles and signs of economic recovery in the U.S. indicate fuel demand is strengthening in the world’s biggest crude consumer. Futures climbed as much as 1.1 percent in New York. The American Petroleum Institute said yesterday that crude inventories dropped 3.2 million barrels last week. An Energy Department report due today is also forecast by analysts to show a drop. Prices 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. “Most of today’s price swing is explained by the inventory numbers,” said Thina Saltvedt, an analyst at Nordea Bank AB in Oslo. “Demand for fuel has been quite resistant to the negative mood in the market. It’ll be very interesting to see the unemployment figures from the U.S. tomorrow.” Crude for August delivery gained as much as $1.05 to $97.70 a barrel in electronic trading on the New York Mercantile Exchange. It was at $97.30 at 11:02 a.m. London time. Yesterday, the contract fell 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 83 cents, or 0.7 percent, to $114.45 a barrel. The European benchmark contract was at a premium of $17.15 to U.S. futures. The difference reached a record $22.29 on June 15. Bullish Outlook 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 a report. 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. Goldman Sachs Group Inc. today reiterated its long-trading recommendation for Brent futures. “We continue to expect that oil demand growth fueled by moderate economic growth expectations will be sufficient to draw down crude oil inventories,” Goldman analysts led by London- based Jeffrey Currie said in a report dated today. U.S. Stockpiles U.S. crude inventories decreased 2.5 million barrels, or 0.7 percent, from 359.5 million barrels in the week ended July 1, according to the median estimate of 15 analysts surveyed by Bloomberg News before today’s Energy Department report. That would be a fifth weekly drop, the longest decline since January. 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 may have climbed by 100,000 workers in June, after a 54,000 increase in May, 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. To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Grant Smith in London at gsmith52@bloomberg.net To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

Source