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Oil prices rise more than $1

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Oil rebounded more than $1 on Wednesday, after two straight sessions of declines, as a surprise drop in gasoline stocks allayed concerns about weaker demand ahead of the peak summer driving season.

Prices were also supported by a softer dollar, but sovereign debt problems in Europe and weak U.S. economic data from the United States kept investors on the edge.

Brent crude for July was up 61 cents at $110.60 a barrel by 2 a.m. EDT, after hitting an intra-day high of $111.08. U.S. crude futures gained 82 cents at $97.73 a barrel, after rising to as high as $98.00 earlier, up from a 12-week settlement low at $96.91 on Tuesday.

“It has been a severe correction since two weeks ago after the dollar rebounded and the ECB didn’t raise interest rates,” said Tony Nunan, a Tokyo-based risk manager at Mitsubishi Corp.

“NYMEX has twice rebounded above $95, maybe the correction has run its course.”

Technical charts indicate short-term bullish targets of $112.50 for Brent and $100 for U.S. oil, according to Wang Tao, a Reuters markets analyst.

U.S. crude stocks rose 2.7 million barrels last week, but gasoline stocks fell 676,000 barrels and distillates dropped 2.8 million barrels, American Petroleum Institute data showed.

A Reuters survey of analysts had forecast U.S. crude inventories would be up for the fourth straight week, but only by 1 million barrels. The poll had also forecast an 800,000 barrels build in gasoline stocks.

The drop in gasoline stocks could signal that demand for the fuel picked up after prices fell last week for the first time in eight weeks, easing from highs of near $4 a gallon in April.

“If DOE data confirms the draw in gasoline, that will be bullish for crude,” Nunan said, adding that supply was not keeping up with demand on lower refinery utilization rates and as Louisiana refineries had been threatened by flood water from the Mississippi River.

Eight large Louisiana refineries equal to 12 percent of national capacity appear to be at lower risk of flooding after U.S. Army engineers opened a key floodgate over the weekend, Senator Mary Laudrieu said.

The U.S. Energy Information Administration will release its own inventory data on Wednesday at 10:30 a.m. EDT.

WEAKER DOLLAR SUPPORTS

The U.S. dollar index, which measures the greenback against a basket of currencies, was down 0.24 percent by 0600 GMT, supporting dollar-denominated commodities. A weaker dollar boosts the purchasing power of holders of other currencies.

Supply worries stemming from geopolitical tensions also continued to support oil prices.

Libya’s top oil official defected from Muammar Gaddafi’s administration and fled to neighboring Tunisia, a Tunisian security source said.

“It confirms what most people believe that it’s just a matter of time that the Gaddafi regime collapses, but it will be a long time before production comes back,” Nunan said.

Libya is a net exporter of crude oil and normally sells around 1.3 million barrels per day to world markets, but is estimated to have lost two thirds of its output since the unrest began three months ago.

But demand worries lingered amid the euro zone’s debt crisis and disappointing data from the United States.

Europe’s top financial officials broke a taboo on Tuesday and acknowledged for the first time that Greece may have to restructure its debt, a move that could stoke Europe’s sovereign debt crisis.

In the United States, factory output slipped for the first time in 10 months in April, while housing starts and building permits fell, data released on Monday showed.
Source: Reuters

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