Oil Rises as Dollar Declines, Crude Supplies Fall Unexpectedly

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"The imports were down and that was a big surprise."

Oil rose in New York as the dollar weakened against the euro and a government report showed an unexpected drop in U.S. crude supplies, boosting optimism about a demand recovery in the biggest energy-consuming nation.

Oil pared yesterday's 1.9% fall as the dollar declined toward a two-week low. Prices were also supported by an Energy Department report that showed U.S. crude stockpiles fell 978,000 barrels last week amid a drop in imports.

"The imports were down and that was a big surprise," said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore. "Any more weakness in the dollar is limiting oil's gains to a cap of about $72. The trading range in crude has gone from $65$75 to about $68$72. It's just getting tighter and tighter."

Crude oil for November delivery gained as much as 91 cents to $70.48 a barrel in electronic trading on the New York Mercantile Exchange. Yesterday, the contract dropped $1.31 to settle at $69.57 a barrel. Prices have gained 58% since the start of the year.

"General weakness in the U.S. dollar is supporting oil," said Jonathan Barratt, managing director of Commodity Broking Services in Sydney. Oil "came off last night but is finding support today."

U.S. crude oil inventories fell 978,000 barrels to 337.4 million, according to the Energy Department report. Imports dropped 4.6% to 9.1 million bpd last week.

Distillate fuel stockpiles rose 679,000 barrels to 171.8 million last week. Supplies were estimated to have declined 400,000 barrels, according to the analyst survey. Gasoline stockpiles climbed 2.94 million barrels to 214.4 million.

Refineries operated at 85% of capacity, up 0.4 percentage point from the previous week. Analysts forecast utilization rates would slip 0.3 percentage point.

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