Oil rises as US inventory drop shows high demand

SINGAPORE, June 29 (Reuters) Oil climbed further above on Thursday after falls in U.S. crude and gasoline inventories underlined worries over summer fuel supplies in the world's top consumer.

U.S. crude was up 16 cents at .35 a barrel by 0307 GMT, adding to gains of 27 cents on Wednesday. London Brent crude rose 17 cents to .58.

U.S. crude stocks fell a larger-than-expected 3.4 million barrels last week as imports slipped and refinery use rose, U.S. government figures showed on Wednesday.

Gasoline prices rose after inventories fell by 1 million barrels, countering analysts' expectations of a small increase, amid strong demand ahead of the July 4 Independence Day holiday when travel is expected to be busier than ever.

''The numbers still worried the market even though inventory levels remain comfortable,'' said Tobin Gorey of the Commonwealth Bank of Australia. ''Many observers thought U.S. consumers were finally feeling the pinch at these high price levels -- these numbers suggest not.'' Prices also drew strength from the closure of a key shipping channel in Louisiana, which limited output at three refineries.

The U.S. government has agreed to lend 750,000 barrels of crude oil from the Strategic Petroleum Reserve to refineries owned by Citgo Petroleum Corp. and ConocoPhillips near Lake Charles, Louisiana, which have had supplies reduced because of the shipping problems.

Citgo's 440,000 barrel per day (bpd) Lake Charles refinery has been cut off from new crude supplies after the Calcasieu Ship Channel was shut on June 21 because of an oil spill from Citgo's terminal facility.

The U.S. Coast Guard said on Wednesday about nine miles of the channel had reopened and about 11 miles remained closed.

Supply disruptions and geopolitical worries in producer countries, against a backdrop of growing demand, have led to fund buying that has driven oil up from at the start of 2002.

Adjusted for inflation, oil is at its most costly since 1980.

U.S. Federal Reserve policy makers, at the conclusion of a two-day meeting on Thursday, are expected to raise interest rates and signal that further increases may be needed to keep inflation in check.

Global oil demand growth in the next few years may be weaker than previously expected because of high prices, an International Energy Agency (IEA) analyst said on Wednesday.

The IEA, adviser to 26 industrialised countries, plans to release a new forecast for mid-term oil demand growth in July. In December, the agency said demand would rise by 1.8 million to 2 million barrels a day from 2007 to 2010.

REUTERS SY BST1014