Oil rises to near $104 after US supplies drop

Oil prices rose slightly to nearly $104 a barrel Wednesday in Asia after a report showed U.S. crude supplies unexpectedly fell, suggesting demand may be improving.

Benchmark oil for June delivery was up 19 cents to $103.74 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 44 cents to settle at $103.55 in New York on Tuesday.

Brent crude for June delivery was up 23 cents at $118.39 per barrel in London.

The American Petroleum Institute said late Tuesday that crude inventories fell 1.0 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 1.5 million barrels.

Crude supplies had jumped more than analyst forecasts for the previous four weeks. The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday.

"If the Energy Department corroborates, this would be a bullish number," energy trader and consultant The Schork Group said in a report.

Inventories of gasoline fell 3.6 million barrels last week while distillates also tumbled 3.6 million barrels, the API said.

Analysts are worried Europe's debt crisis may force further government spending cuts that would hurt economic growth. Capital Economics expects Europe's economy to shrink 1 percent this year and 2.5 percent in 2013.

"Large parts of the euro-zone are fundamentally uncompetitive and have unsustainable debt burdens," Capital Economics said in a report. "We still expect some form of euro-zone break-up to begin in the coming year or so."

Investors will also be closely watching comments by the U.S. Federal Reserve about the strength of the recovery and monetary policy after its meeting Wednesday.

In other energy trading, heating oil was up 0.7 cents at $3.14 per gallon and gasoline futures fell 0.3 cents at $3.12 per gallon. Natural gas rose 0.5 cents at $1.98 per 1,000 cubic feet.