Oil back above $71

Crude prices reach 10-month highs as market sees reduced global inventories on the horizon.

July 2 2007: 3:50 PM EDT

NEW YORK (Reuters) -- Oil prices rose to 10-month highs above $71 on Monday on expectations that recovering refinery operations in the United States and ongoing supply restrictions will cut into global oil inventories.

Analysts expect weekly U.S. oil data on Thursday to show a decline in crude oil inventories as more U.S. refineries resume operations after an unusually long and extensive spring maintenance season.

ConocoPhillips (up $1.59 to $80.09, Charts, Fortune 500) began a restart of a gasoline-making unit at a Texas refinery Friday, while one of two shut crude units at a BP (up $1.00 to $73.14, Charts) refinery in Indiana will reach full rates within two to three weeks.

U.S. crude reached a 10-month high, rising 41 cents to $71.09. London Brent crude rose $1.22 to settle at $72.63 per barrel, also its highest level since August.

Oil output disruptions in Nigeria and supply cuts by the Organization of the Petroleum Exporting Countries have helped Brent climb 17 percent this year.

"U.S. crude oil stocks will draw in the next two months as there is little room to build further and as refineries increase their intake," said Olivier Jakob, analyst at Petromatrix.

The International Energy Agency warned Monday that crude oil demand from refineries would rise sharply in the coming weeks and repeated its call for the Organization of Petroleum Exporting Countries to increase oil production.

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OPEC is not due to meet until September, and Saudi Arabia and other OPEC members want global oil inventories to fall from their current levels before they increase production, a Gulf official familiar with the kingdom's policies told Reuters on Monday.

"Stocks are at their highest in nine years," the Gulf official said. "It is really too early to predict what will happen in September."

U.S. crude oil futures have been trading at an atypical discount to Brent since February amid high stocks of crude oil at Cushing, Okla., the delivery point for U.S. crude futures and other inland markets.

The restart of several Midwestern refineries has helped reduce the supply overhang at Cushing, spurring traders to close the gap between Brent and U.S. crude last week. However, the shutdown of a refinery in Kansas that is supplied from Cushing pushed the discount back over $1.50 per barrel Monday.

Coffeyville Resources shut a 108,000 bpd refinery in Coffeyville, Kan., over the weekend after severe flooding. No restart time for the refinery has been given.