Oil back near $73 as market awaits supply report

By PABLO GORONDI Associated Press Writer

(AP) - Oil prices were back near $73 a barrel Thursday after temporarily rising over $74 as a report showed U.S. crude inventories falling more than expected, suggesting consumer demand is growing. A separate government report, due later in the day, was awaited for more direction.

By early afternoon in Europe, benchmark crude for July delivery was up 38 cents to $73.24 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it rose as high as $74.40. The contract rose 28 cents to settle at $72.86 on Wednesday.

Crude supplies fell more than expected last week, dropping by 1.4 million barrels, the American Petroleum Institute said late Wednesday. Analysts had expected an increase of 1 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Inventories of gasoline also fell while distillates rose, the API said.

The Energy Department's Energy Information Administration is scheduled to announce its supply report - the market benchmark - later Thursday.

Oil prices have sunk from $87 a month ago on investor fears a slowing economy in Europe could drag on global demand for commodities.

"Oil prices are clearly at the mercy of jittery nerves and fragile sentiment," Barclays Capital said in a report. "Once the nerves calm down, and fundamentals reassert themselves, we would expect prices to move higher quickly."

A rebounding euro and stock markets also helped buoy crude investor sentiment. The Dow Jones industrial average rose 2.3 percent Wednesday and most major Asian and European stock markets gained Thursday.

"It seems that the strong rally in the equity markets proved that risk appetite is back on the board and spread optimism in the energy market, helping crude oil prices to move higher," said a report from Sucden Financial in London. "Investors might remain cautious and wait for further clarification from the U.S. economic figures today and the EIA inventories report as there is still volatility and uncertainty in the markets."

The euro rose to $1.2263 on Thursday from $1.2204 on Wednesday. A weaker dollar makes oil cheaper for investors holding other currencies.

In other Nymex trading in July contracts, heating oil fell 0.14 cent to $2.0045 a gallon and gasoline rose 0.39 cent to $2.0300 a gallon. Natural gas was up 0.9 cent at $4.433 per 1,000 cubic feet.

In London, the Brent crude July contact was up 45 cents to $74.20 on the ICE futures exchange.

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Associated Press writer Alex Kennedy in Singapore contributed to this report.