Oil rises to near $123, US gasoline stocks fall

The U.S. Energy Information Administration said gasoline inventories fell by 3.5 million barrels compared with forecasts of a 200,000 barrel build, as U.S. gasoline production dropped and imports fell.

"The report offers the bulls more potential than they have had over the last few weeks," said Rob Kurzatkowski, futures analyst at OptionsXpress in Chicago.

U.S. crude rose 83 cents to $123.02 by 1519 GMT, recovering from a low of $120.80 earlier in the session and well clear of a low of $120.42 on Tuesday, the lowest since May 6.

European benchmark London Brent rose 56 cents to $123.27.

The EIA said U.S. crude oil stocks dropped by 100,000 barrels, 1.5 million less than the fall analysts had expected, while distillate stocks rose 2.4 million barrels, 500,000 barrels more than expected.

"However, the rest of the report looks bearish, with crude stocks dropping less than expected and with distillates increasing more than anticipated," said Jim Ritterbusch, president of Ritterbusch & Associates.

Oil has slid from a record high of $147.27 on July 11, the steepest drop from a high since early 2007, pressured by signs that costly fuel and an economic slowdown are curbing demand, especially in the United States.

A cut to supply in Nigeria earlier this week and tension over Iran's nuclear programme limited oil's decline. Iran is the second-largest producer in the Organization of the Petroleum Exporting Countries.

Iran will pursue its nuclear path, the country's highest authority, Supreme Leader Ayatollah Ali Khamenei, said on Wednesday, speaking just before a deadline set by world powers in the dispute.

Western powers gave Iran two weeks from July 19 to respond to their offer to hold off on imposing more U.N. sanctions on Iran if Tehran would freeze any expansion of its nuclear work.

In Nigeria, Africa's top oil producer, Royal Dutch Shell declared force majeure on Bonny Light exports after militants blew up parts of a key pipeline earlier this week.