Oil rises to 2-year high near $91 as equities jump

[December 23, 2010]  SINGAPORE (AP) -- Oil prices rose to fresh two-year highs near $91 a barrel Thursday in Asia as a U.S. stock market rally boosted optimism that demand will improve.

Benchmark oil for February delivery rose as high as $90.79 a barrel, the highest since October 2008, and was up 8 cents to $90.57 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 66 cents to settle at $90.48 on Wednesday.

The Dow Jones industrial average and the S&P 500 index both rose Wednesday to their highest levels since July 2008 after the Commerce Department said the U.S. economy rose in the third quarter at an annual rate of 2.6 percent, a slight increase from its earlier estimate.

"The price of crude is highly connected to the direction of the equities markets and confidence in a global recovery," Sander Capital Advisors said in a report. "When equities go up, it tends to mean confidence is up and thus consumption is up."

Crude was also buoyed by falling U.S. crude supplies, which suggest demand may be improving. The Energy Department's Energy Information Administration said Wednesday that crude supplies dropped by 5.3 million barrels last week from the week before. The EIA said last week that supplies dropped 9.9 million barrels the previous week, the biggest drop in eight years.

"The market at its tightest in well over two years," Barclays Capital said in a report. "At the start of the year, even the most optimistic view on the oil market would not have expected such a barrage of upside demand surprises and such a quick drawdown of inventories."

In other Nymex trading in January contracts, heating oil rose 0.6 cent to $2.53 a gallon, gasoline futures added 0.1 cent to $2.43 a gallon and natural gas dropped 0.4 cent to $4.11 per 1,000 cubic feet.

In London, Brent crude rose 4 cents to $93.69 a barrel on the ICE Futures exchange.

[Associated Press; By ALEX KENNEDY]

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