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updated: 7/20/2011 9:01 AM

Oil rises above $98 after U.S. crude supply drop

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Associated Press

SINGAPORE -- Oil prices rose to above $98 a barrel Wednesday in Asia after a report showed U.S. crude supplies dropped more than expected, a sign that demand may be improving.

Benchmark oil for August delivery was up 99 cents to $98.49 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. Crude rose $1.57 to settle at $97.50 on Tuesday.

In London, the September contract for Brent crude rose $1.08 to $118.14 per barrel on the ICE Futures exchange.

The American Petroleum Institute said late Tuesday that crude inventories fell 5.2 million barrels last week, while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a drop of 1.3 million barrels.

Inventories of gasoline rose 2.0 million barrels last week, while distillates increased 1.1 million barrels, the API said.

The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday.

Evidence that the U.S. housing market may be recovering also helped boost investor optimism and oil prices. The Commerce Department on Tuesday said construction of new homes grew by 14.6 percent last month.

The Dow Jones industrial average jumped 1.6 percent Tuesday and most Asian stock markets gained Wednesday.

"The oil price support was heavily influenced by some housing starts and permit figures that easily exceeded expectations," energy analyst Ritterbusch and Associates said in a report. "Swings in the euro and the U.S. stock market have become an important influence behind the oil price movements seen thus far this month."

In other Nymex trading in September contracts, heating oil added 2.0 cents to $3.13 a gallon, while gasoline gained 2.1 cents at $3.09 a gallon. Natural gas futures for August delivery advanced 2.2 cents at $4.56 per 1,000 cubic feet.