Oil clings to gains

New York - Oil prices clung to small gains on Thursday after a report showed that US crude inventories decreased more than expected last week.

Oil also got support from a weaker dollar, Opec's decision to maintain production levels and a new report that says the slump in global oil demand will not be as bad as initially feared.

Benchmark crude for October delivery rose 5 cents to $71.36 a barrel on the New York Mercantile Exchange. Earlier in the day, the contract rose as high as $72.44. On Wednesday, the contract rose 21 cents.

The Energy Information Administration reported that crude inventories fell by 5.9 million barrels for the week ended Friday, more than three times estimates of analysts surveyed by Platt's, the energy information arm of McGraw-Hill Cos.

The government also said stocks of gasoline and distillates used for diesel fuel and heating oil rose for the week as demand for crude over the last four weeks increased by 2% from a year ago when Hurricane Gustav battered Louisiana. The report showed supplies remain ample.

PFGBest analyst Phil Flynn said the decline in crude supplies shows that refiners were boosting production ahead of Labour Day, which marks the end of the summer driving season.

"The question is whether the demand is going to be enough to meet the supply," he said.

Crude has jumped from $68 a barrel in two days as the dollar weakened to its lowest level this year. Because crude is priced in the US currency, it becomes cheaper when the dollar falls. Some investors also use commodities like oil and gold as a hedge against inflation and dollar weakness.

The Organisation of Petroleum Exporting Countries, responsible for about 40% of the world's oil production, confirmed Thursday at its meeting in Vienna that it will keep crude production levels the same.

OPEC said in a statement that "market fundamentals have remained weak" and that "whilst there are signs that economic recovery is under way, there remains great concern about the magnitude and pace of this recovery," especially in the West.

Meanwhile in Paris, the International Energy Agency said the slump in global oil demand in 2009 will be less severe than previously forecast and predicted consumption would rise in 2010 as the world economy stabilises.

The IEA said Thursday that crude demand will reach 84.4 million barrels a day this year, down 2.2% from 2008 levels, but better than the 2.7% decline the agency forecast previously. The IEA also raised its forecast for oil demand in 2010 to 85.7 million barrels a day, or half a million barrels a day more than its previous forecast.

In other Nymex trading, gasoline for October delivery was down 2.1 cents $1.8071 a gallon, and heating oil fell 0.85 cents to $1.7859 a gallon. Natural gas rose 8 cents to $2.914 per 1 000 cubic feet.

In London, Brent crude was down 38 cents to $69.45 on the ICE Futures exchange.

- AP