Oil hovers below $78 after US crude supply drop

SINGAPORE: Oil prices hovered below $78 a barrel Thursday in Asia after strong gains the previous day on a drop in U.S. crude supplies, a sign demand may be improving.

Benchmark crude for November delivery was down 21 cents to $77.65 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract gained $1.20 to settle at $77.86 on Wednesday.

The Energy Department said commercial crude inventories decreased by 500,000 barrels to 357.9 million barrels, while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had forecast an increase of 2.2 million barrels. The total was about 5.7 percent above year-ago levels.

Crude in storage had increased in recent weeks, dashing investor hopes that demand would rebound as the U.S. economy recovers from last year's recession. Some analysts expect robust demand growth in emerging economies will help offset sluggish consumption in developed countries.

``The rise in U.S. total petroleum inventories to their highest level in over 25 years suggests that the drawdown in OECD inventories to more normal levels will likely take some time,'' Goldman Sachs said in a report.

``However, we expect the supply-demand balance to continue to tighten in the second half as continued global economic growth continues to strengthen demand.''

In other Nymex trading in October contracts, heating oil was steady at $2.191 a gallon and gasoline held at $1.996 a gallon. November natural gas was little changed at $3.966 per 1,000 cubic feet.

In London, Brent crude fell 18 cents to $80.59 a barrel on the ICE Futures exchange.