Oil surged to a three-week high in New York on signs that the U.S. economic recovery is whittling down crude inventories in the world’s largest user of the commodity. Futures climbed as much as 2.1 percent in New York after reports showed that U.S. companies added 157,000 workers in June and applications for unemployment benefits declined last week. 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. Morgan Stanley said it is bullish on oil in the second half of 2011 as production capacity falls. “Uncertainty in the euro zone is contrasting with improving numbers in the U.S.,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “For now the short-term sentiment in oil market is positive as the market tracks macroeconomic themes, though the stronger dollar could cap gains in commodities.” Crude for August delivery gained as much as $2.05 to $98.70 a barrel in electronic trading on the New York Mercantile Exchange. That’s the highest since June 15. It was at $98.63 at 1:51 p.m. London time. Yesterday, the contract fell to $96.65, the lowest since July 1. Brent crude for August settlement on the London-based ICE Futures Europe exchange rose $2.69, or 2.4 percent, to $116.31 a barrel. The European benchmark was at a premium of $17.68 to U.S. futures. The difference reached a record $22.29 on June 15. U.S. Labor Market U.S. initial jobless claims fell by 14,000 to 418,000 in the week ended July 2, Labor Department figures showed today in Washington. The median forecast of economists in a Bloomberg News survey called for a drop to 420,000. A report from ADP Employer Services today showed that companies in the U.S. added 157,000 workers to their payrolls in June. The median estimate of economists surveyed by Bloomberg News indicated an advance of 70,000. The Labor Department may say tomorrow that nonfarm payrolls 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 by Bloomberg News. The jobless rate probably held at 9.1 percent. 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. 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. 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

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