Oil rose for a second day in New York on speculation demand for fuel may be growing in the US after a government report showed gasoline inventories plunged the most in 12 years.

Crude advanced as much as 0.5 per cent after the Energy Department said yesterday that gasoline stockpiles declined by 7 million barrels last week to 209.7 million, the biggest drop since October 9th, 1998.

Inventories were forecast to fall 1 million barrels, according to a Bloomberg News survey. Futures pared gains as European equity markets opened lower.

"The talk is that this US inventory report saw a spectacular draw in gasoline, and that prompted the buying," said Victor Shum, a senior principal at consultants Purvin and Gertz Inc. in Singapore. "The bounce is mainly a rebound from the sharp correction of a couple of days ago."

Crude for May delivery rose as much as 49 cents to $107.60 a barrel and was at $107.14 in electronic trading on the New York Mercantile Exchange at 8:44 a.m.. Yesterday, the contract climbed 86 cents to $107.11, the highest settlement since April 11th. Prices are up 25 per cent from a year ago.

Brent oil for May settlement traded at $122.90 a barrel, up 2 cents, on the ICE Futures Europe exchange in London. The contract, which expires today, rose $1.96, or 1.6 per cent, to $122.88 yesterday. The more actively traded June contract was unchanged at $122.33 after rising 1.6 per cent yesterday.

The European benchmark traded at a premium of $15.76 a barrel to US futures yesterday. The difference between front-month contracts in London and New York surged to a record $19.54 on February 21st as unrest spread in the Middle East and North Africa and stockpiles climbed at Cushing, Oklahoma, the delivery point for New York futures.

Bloomberg