Oil rises to near $80 in European trade on weaker dollar, report of US crude inventory drop

Oil up near $80 as US crude supplies drop

Oil prices extended gains to near $80 a barrel Wednesday, supported by a weaker dollar and as a report showed an unexpected drop in U.S. crude supplies, suggesting demand could be improving.

By early afternoon in Europe, benchmark crude for December delivery was up 70 cents to $79.84 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 24 cents to settle at $79.14 on Tuesday.

U.S. crude inventories unexpectedly fell last week, the American Petroleum Institute said late Tuesday. Crude stocks fell 4.4 million barrels while analysts had expected a rise of 1.2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The Energy Information Administration plans to announce its inventory report — considered the market benchmark — later Wednesday.

Crude prices have zigzagged around $79 a barrel for more than a month as investors mull mixed economic data from the U.S. Prices are up from $32 in December but still below the record high of $147 in July, 2008.

Home Depot Inc., Saks Inc. and Target Corp. all reported better-than-expected third-quarter results Wednesday. Traders will next be eyeing the holiday shopping season for signs of improving consumer confidence.

Some analysts expect weak global economic growth to keep commodities such as oil from surging much higher. Global growth will likely average 2.5 percent a year during the next three years, about half the rate between 2002 and 2007, said Stephen Roach, Asia Chairman for Morgan Stanley.

“I don’t see commodities repeating the boom-like surges,” Roach said in Singapore.

Despite the low level of demand, commodities like oil and gold have been favored by investors seeking a hedge against dollar weakness and inflation. Dollar-denominated oil becomes cheaper in other currencies when the U.S. currency weakens.

On Wednesday, the euro rose to $1.4965 from $1.4855 late Tuesday in New York, while the British pound rose to $1.6821 from $1.6797 and the dollar fell to 89.11 Japanese yen from 89.32 yen.

In other Nymex trading, heating oil rose 1.99 cents to $2.0784 a gallon. Gasoline for December delivery gained 2.61 cents to $2.0310 a gallon. Natural gas for December delivery fell 0.6 cent to $4.524 per 1,000 cubic feet.

In London, Brent crude for December delivery rose 78 cents to $79.75 on the ICE Futures exchange.

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