Oil rose from a two-day low in New York as investors bet shrinking stockpiles and signs of economic recovery in the U.S. indicated fuel demand is strengthening in the world’s biggest crude consumer. Futures climbed as much as 0.8 percent after the American Petroleum Institute said yesterday that inventories dropped 3.2 million barrels last week, more than the 2.5 million barrels predicted in a Bloomberg News survey before an Energy Department report today. Prices also advanced before data tomorrow that may show the U.S. added more jobs in June. Morgan Stanley said the cost of light, sweet oil may decline in “coming weeks” as stockpiles are released to the market. “The inventory numbers and euphoric buying is probably what’s helping crude higher,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney, who predicts oil will average $100 a barrel this year. “The big numbers are the employment data. The market is focused on positive numbers and if they don’t get it, it’ll be the last nail in the coffin. China is slowing and Europe is a mess.” Crude for August delivery gained as much as 80 cents to $97.45 a barrel in electronic trading on the New York Mercantile Exchange and was at $97.35 at 12:12 p.m. Singapore time. The contract yesterday fell 24 cents to $96.65, the lowest since July 1. Prices are 32 percent higher the past year. Brent crude for August delivery increased 48 cents, or 0.4 percent, to $114.10 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $16.72 to U.S. futures. The spread reached a record $22.29 on June 15. Brent Spread Brent’s premium to U.S. crude may widen to $40 a barrel or more between now and the middle of 2012, Citigroup Global Markets Inc. said in a note yesterday. An increase of 260,000 barrels a day in output from western Canada and the U.S. mid- continent from 2008 to 2010 has led to near-record supplies at Cushing, Oklahoma, the delivery point for New York-traded West Texas Intermediate, the note said. The price of Brent and other light, sweet crude such as Light Louisiana, may be pressured as strategic stockpiles are released to the market, Morgan Stanley said in an e-mailed report. The bank remains “bullish” on prices in the second half of the year as inventories shrink, it said. A Labor Department report tomorrow may show payrolls climbed by 100,000 workers after a May increase that was the smallest in eight months, according to the median forecast of economists surveyed by Bloomberg News. The jobless rate held at 9.1 percent. Oil also gained today as Japanese machinery orders climbed at the fastest pace in fourth months in May, a sign of increased spending as companies rebuild after the March 11 earthquake. Japan is the world’s third largest crude user. Energy Department The Energy Department may say crude inventories decreased by 0.7 percent to 357 million in the week ended July 1, according to the median of 15 analyst estimates. The American Petroleum Institute collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey. In the past four years, the reports have moved the same direction 76 percent of the time for oil. Gasoline stockpiles probably slipped 150,000 barrels to 213 million last week, the survey showed. Supplies of distillate fuel, a category that includes heating oil and diesel, probably rose 900,000 barrels, or 0.6 percent, to 143.2 million barrels. The Department is scheduled to release its weekly report at 11 a.m. in Washington, a day late because of the Fourth of July holiday. China Tightening Oil dropped 0.3 percent yesterday after China raised benchmark interest rates for the third time this year, stoking speculation that fuel demand may falter in the world’s biggest energy user. Inflation has accelerated to the fastest pace since July 2008. Europe’s central bank will increase its main refinancing rate to 1.50 percent today from 1.25 percent, according to all 55 economists in a Bloomberg News survey. To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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