Oil prices advanced again Thursday on upbeat economic news that could hint at improving demand for energy products.

Benchmark oil rose $1.04 to $78.90 a barrel on the New York Mercantile Exchange.

At the pump, the national average for a gallon of unleaded regular gasoline has fallen 2.6 cents in the past week to $2.689 on Thursday, according to a survey by AAA, Wright Express and the Oil Price Information Service. It's still 21 cents more than it was a year ago.

Oil traders' expectations for improving demand were bolstered by new reports showing a decline in first-time claims for jobless benefits and an improvement in Chicago regional manufacturing activity. The government also raised its second-quarter estimate on gross domestic product to 1.7 percent from 1.6 percent.

The latest data follows Wednesday's report from the Energy Department showing a decline in inventories of crude oil, gasoline and distillates, which include heating oil and fuel. The report sent oil prices higher.

"The economic outlook seems to be rosier this morning and that is making yesterday's take on the DOE figures look correct," Cameron Hanover energy consultancy stated in a report. "Traders have been talking about the possibility that (inventories) have peaked and that resurgent demand could help them start to drop from their recent excessively high levels."

But oil inventories are nearly 18 percent above the average between 2004 and 2008, and distillates stockpiles are nearly 30 percent higher than the average, according to oil trader Stephen Schork. He thinks investment funds are behind the rise in prices. He says they're putting money into oil because the third quarter comes to a close on Thursday.

"Effectively, there is no demand," he said. "This is the time where the physical players are out of the market and you tend to see more volatility."

In other trading, natural gas prices dropped after the Energy Information Administration said inventories grew last week more than analysts expected.

Natural gas held in underground storage in the lower 48 states increased by 74 billion cubic feet to 3.414 trillion cubic feet for the week ended Sept. 24, the agency said. Supplies are 4.6 percent less than last year's level and 6.3 percent more than the five-year average of 3.212 trillion cubic feet.

Natural gas for November delivery fell 14.2 cents, or 3.6 percent, to $3.820 per 1,000 cubic feet.

In other Nymex trading in October contracts, heating oil rose 3.4 cents to $2.2246 a gallon and gasoline was up 2.79 cents at $2.0234 a gallon.

In London, Brent crude rose 77 cents to $81.39 a barrel on the ICE Futures exchange.


Associated Press writers Barry Hatton in Portugal and Alex Kennedy in Singapore contributed to this report.