Oil heads toward $107 a barrel after sharp drop in US crude inventories signals higher demand

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The price of oil extended gains to near $107 a barrel Thursday after a sharp drop in U.S. crude inventories underlined rising demand.

Benchmark crude for August delivery was up 30 cents to $106.82 at early afternoon Bangkok time in electronic trading on the New York Mercantile Exchange. The last time oil was above $107 was in March last year.

The contract vaulted $2.99 to $106.52 on Wednesday after the Energy Department said U.S. crude supplies fell by 9.9 million barrels in the week ended July 5. Gasoline supplies fell by 2.6 million barrels. The price of oil has shot up $11 a barrel in two weeks on rising demand in the U.S. and political upheaval in the Middle East.

In the past two weeks, oil supplies have dropped 20.2 million barrels, which is slightly more than one day's consumption for the U.S., while gasoline supplies have fallen 4.3 million barrels.

Over the same time, demand in the U.S., the world's largest consumer of gasoline, rose sharply after months of weakness. Demand rose 4 percent compared with the same period last year, to 9.3 million barrels per day.

Brent crude was up 28 cents to $107.95 a barrel on the ICE exchange in London.

In other energy futures trading on Nymex:

— Wholesale gasoline dropped 0.1 cent to $3.014 a gallon.

— Natural gas fell 1 cent to $3.67 per 1,000 cubic feet.

— Heating oil rose 1.2 cents to $3.014 a gallon.