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Oil hovers above $79 after US crude supply jump

Oil hovered above $79 a barrel Wednesday in Asia after a report showed a surprise increase in U.S. crude supplies, suggesting demand remains weak.

Benchmark oil for August delivery was up 12 cents at $79.48 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell 15 cents to settle at $79.36 in New York on Tuesday.

In London, Brent crude for August delivery was down 16 cents at $92.86 per barrel on the ICE Futures exchange.

The American Petroleum Institute said late Tuesday that crude inventories rose 500,000 barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a drop of 1 million barrels.

Inventories of gasoline increased 400,000 barrels last week while distillates fell 1 million barrels, the API said.

The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday.

Crude has fallen to near eight-month lows from $106 less than two months ago amid signs economic growth and oil demand are slowing in the U.S., Europe and China.

Traders will be closely watching the tightening of European sanctions July 1 against Iran over the country's nuclear program. Some analysts expect increased crude output by Saudi Arabia and other producers and continuing Iran oil sales to China, Japan and India should offset any reduction in Iran's exports.

"This will certainly blunt some of the impact of the E.U. sanctions going forward," said Richard Soultanian, an energy analyst with NUS Consulting. "We expect the results of the upcoming implementation of the E.U. embargo to be muted."

Soultanian said he expects crude to soon drop to as low as the mid-$60s.

In other energy trading, heating oil was up 0.4 cents at $2.58 per gallon while gasoline futures gained 0.4 cents at $2.53 per gallon. Natural gas added 2.9 cents at $2.80 per 1,000 cubic feet.