Oil hovers below $87 after mixed US supply report

[April 20, 2010]  PARIS (AP) -- A stronger U.S. dollar helped keep oil prices below $87 a barrel Wednesday after a report showed U.S. gasoline supplies fell more than expected last week while crude and distillate inventories rose.

By early afternoon in Europe, benchmark crude for May delivery was down 27 cents to $86.57 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 22 cents to settle at $86.84 on Tuesday, while earlier in the day prices touched a new 18-month high of $87.09 a barrel.

Gasoline inventories dropped last week by 3.0 million barrels, the American Petroleum Institute said late Tuesday. Analysts had expected a fall of 1.0 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

However, inventories of crude and distillates rose, the API said.

The Energy Department's Energy Information Administration is scheduled to announce its supply report later Wednesday.

Some analysts point to growing crude demand in developing countries as reason to expect prices will extend a two-month rally.

"Evidence of a steady rebound in global oil demand is continuing to accumulate," Barclays Capital said in a report. "Non-OECD Asian and Middle Eastern demand continues to grow at a phenomenal pace."

A slightly stronger dollar -- which makes crude more expensive for investors holding other currencies -- helped keep oil prices under $87.

The euro fell to $1.3372 on Wednesday from $1.3396 in New York the previous evening, amid a new round of market jitters over Greece's debt crisis.

The British pound dropped to $1.5187 from $1.5277, while the dollar crept up to 93.94 Japanese yen from 93.87 yen.

"We think the current rally in crude, although still looking formidable on the charts, is getting long in the tooth, and due for a modest pullback, especially if the dollar regains its strength in the wake of continued eurozone jitters," said Edward Meir, senior commodity analyst at MF Global in New York.

In other Nymex trading in May contracts, heating oil fell 0.85 cent to $2.2598 a gallon, and gasoline lost 0.33 cent to $2.3450 a gallon. Natural gas jumped 2.0 cents to $4.116 per 1,000 cubic feet.

In London, Brent crude was down 7 cents at $86.08 on the ICE futures exchange.

[Associated Press; By PABLO GORONDI]

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

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