Oil was steady on Wednesday, trading near 18-month highs around $87 after a larger than expected drop in US gasoline stockpiles signalled fuel demand was rebounding with an improving economic outlook. US crude for May was unchanged at $86.84 at 0710 GMT, 25 cents shy of Tuesday's intraday peak of $87.09, the highest price since October 2008. London ICE Brent climbed 7 cents to $86.22.
Gasoline inventories in the US fell a larger-than-expected 3 million barrels last week, the industry-funded American Petroleum Institute (API) said on Tuesday. "We have recently seen some good economic data from the United States, and the market should appreciate that there is a strong correlation between oil and the economy," said Mark Pervan, a senior commodities analyst at ANZ in Melbourne.
Tuesday's release of minutes from the Fed's last policy meeting indicated the US central bank could maintain ultra-low interest rates for even longer than investors have anticipated if the economic outlook worsens or inflation drops, boosting confidence that demand for commodities will continue to grow. "Oil has probably moved into a new trading range, with a floor around $85 creating a bit of additional long buying," Pervan said. "The market will take the gasoline stockdraw as a buying signal as we move into the driving season."
TENTH STRAIGHT GAIN US crude oil stockpiles increased less than expected, according to the API, adding 1.1 million barrels in the week ended April 2. But inventories of distillates, comprising heating oil and diesel, rose unexpectedly as refineries processed more crude, the API said.