Oil rises above $74 as US crude supplies drop

By ALEX KENNEDY Associated Press Writer

SINGAPORE (AP) - Oil prices rose above $74 a barrel Thursday in Asia after a report showed U.S. crude inventories fell more than expected, suggesting consumer demand is growing.

Benchmark crude for July delivery was up $1.39 at $74.25 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. 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 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 stock markets gained Thursday.

The euro rose to $1.2287 on Thursday from $1.2204 on Wednesday while the dollar gained to 92.41 yen from 90.98 yen.

In other Nymex trading in June contracts, heating oil rose 2.86 cents to $2.0345 a gallon and gasoline jumped 3.87 cents to $2.0648 a gallon. Natural gas was up 1.9 cents at $4.443 per 1,000 cubic feet.

In London, the Brent crude July contact was up 98 cents to $74.70 on the ICE futures exchange.