Oil extends gains above $65 after U.S. stocks data

PERTH, May 29 (Reuters) – Oil rose to a new six-month high above $65 a barrel on Friday, on track for its largest monthly percentage gain in more than a decade, after government data showed a surprisingly sharp drop in U.S. crude inventories and OPEC left output steady.

Oil prices have jumped 28 percent this month, buoyed by hopes of a global economic recovery later this year and a bullish price outlook from OPEC kingpin Saudi Arabia.

U.S. crude oil for July delivery CLc1 rose 48 cents to $65.60 a barrel by 0700 GMT, after earlier touching $65.70, a level unseen since Nov. 5. The contract, which has risen about 5 percent this week, settled up 2.6 percent at $65.08 on Thursday.

London Brent crude LCOc1 gained 34 cents to $64.73.

“The market seems to be focusing strongly on the bullish sentiment and the brighter macroeconomic outlook, but it’s a little doubtful whether the demand fundamentals can continue to support oil prices at such levels,” said David Moore, a commodities analyst at the Commonwealth Bank of Australia.

Signs of an uptick in demand are emerging in the United States and Japan after the sharpest downturn in decades, prompting companies to revive production and investors to buy shares, despite lingering concerns over mounting Western government debt. [ID:nSP465917]

Another bright spot was U.S. crude stocks, which fell by 5.4 million barrels in the week to May 22, the U.S. Energy Administration said, way above analysts’ expectations in a Reuters poll for a 700,000 barrel decline, as refiners ramped up output ahead of the summer driving season. [EIA/S]

Gasoline inventories also dropped for the fifth week in a row as demand rose in the week preceding the Memorial Day holiday, which traditionally marks the start of the summer driving season in the U.S.

OPEC’s decision to hold production steady helped prop up prices.

The producer group on Thursday kept its output targets unchanged as the market had expected, betting on a strengthening world economy and tentative signs of increased demand.

(For a list of stories on the OPEC meeting, click [ID:nLM346491])

Analysts said Saudi Arabia’s rare forecast this week that oil prices could reach $75 a barrel later this year represented a distinct policy shift from the world’s largest oil producer, which has until recently been hinting that it would be happy with a lower price to help the world economy back on its feet.

“Taken in this light, Saudi’s statement clearly represents a policy shift from a priority on the economy to a view that higher prices are not something that Saudi Arabia will stand in the way of,” JP Morgan’s energy analyst, Lawrence Eagles, said in a note.

But in a sign that global oil demand was still fragile, crude imports from Japan, the world’s No.2 energy consumer, fell 22.5 percent in April from a year earlier, while the country’s largest refiner Nippon Oil Corp 5001.T said it planned to refine about 4 percent less crude oil in June compared with a year ago. [ID:nTKC003355][ID:nTKX006262]

Investors will be keeping a close watch on economic data due later, including U.S. first-quarter preliminary GDP figures and Reuters/University of Michigan May consumer sentiment. [ECONUS] (Editing by Ben Tan)