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Oil above $108 on Fed stimulus, supplies drop

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The price of oil rose further above $108 a barrel Thursday after the U.S. Federal Reserve kept its monetary stimulus in place and U.S. oil supplies fell more than expected.

By early afternoon in Europe, benchmark oil for October delivery was up 29 cents to $108.36 a barrel in electronic trading on the New York Mercantile Exchange.

Prices spiked Wednesday after the Federal Reserve unexpectedly maintained its stimulus for the U.S. economy and the Energy Department reported a bigger than expected drop in supplies of crude oil and gasoline. The Nymex contract climbed $2.65, or 2.5 percent, to close at $108.07.

The Fed was widely expected to begin winding down its program — known also as quantitative easing, or QE — of buying $85 billion a month in bonds and other assets. Instead, the central bank said it will maintain the pace of the bond purchases because it thinks the economy still needs the support.

Global stocks and commodities have surged in recent months as the new money generated by the unconventional program flowed through the financial system. Following the Fed's announcement on Wednesday, the Standard & Poor's 500 and the Dow Jones industrial average jumped to all-time highs.

"We expect the recent rally in the oil market to continue, as risk appetite has returned to the markets," said a report from analysts at Sucden Financial Research in London. "As the QE program is set to continue ... we could expect a strong recovery in the U.S. economy that could increase oil demand in the second half of 2013."

The U.S. Energy Department said supplies of crude oil fell by 4.4 million barrels last week, almost three times more than analysts expected, to 355.6 million barrels. That was their lowest level since March 2012.

Investors will later also monitor reports on the number of Americans applying for unemployment benefits and on sales of previously occupied homes for a snapshot of the state of the world's largest economy.

In other markets, Brent crude, the benchmark for international crudes used by many U.S. refineries, was up 16 cents to $110.76 a barrel on the ICE Futures exchange in London.

Energy futures trading in New York showed:

— Wholesale gasoline rose 0.82 cent to $2.735 per gallon.

— Natural gas rose 2.7 cents to $3.74 per 1,000 cubic feet.

— Heating oil rose 1.19 cent to $3.0524 per gallon.

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Pamela Sampson in Bangkok contributed to this report.

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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