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US oil rallies as gas inventory fall boosts prices

U.S. crude rose on Thursday after government data showed a sharp drop in gasoline stocks that outweighed a build in overall crude stocks, while Brent was buttressed by the loss of most supply from Libya and geopolitical risk in Ukraine.

Crude stockpiles rose last week overall by 1.7 million barrels, but a strong start to the summer driving season drained gasoline inventories by 1.8 million barrels, more than forecast, the Energy Information Administration reported.

Industry group, the American Petroleum Institute (API) had forecast crude stocks would rise by 3.5 million barrels. The brighter demand outlook underpinned prices already boosted by concerns about Libyan supply and tensions between the West and Russia, the world's second-largest oil exporter.

Gas is flared as waste from the Monterey Shale formation where gas and oil is extracted using hydraulic fracturing, or fracking, in March 2014 near Buttonwillow, Calif.
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Gas is flared as waste from the Monterey Shale formation where gas and oil is extracted using hydraulic fracturing, or fracking, in March 2014 near Buttonwillow, Calif.

Mixed data in the U.S. capped gains in crude futures after reports showed jobless claims fell more than expected, but the economy contracted for the first time in three years in the first quarter, hindered by the severe winter.

U.S. crude oil rose 86 cents to settle at $103.58, after ending $1.39 down in the previous session as traders took profit. Brent crude was up 20 cents near $110 a barrel after losing 21 cents on Wednesday.

Traders continued to watch the situation in Ukraine, where pro-Russian separatists shot down an army helicopter on Thursday, as government forces pressed ahead with an offensive to crush rebellions in the east following the election of a new president.

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