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Oil Inches Higher as Stocks Rally

The July oil contract gained 28 cents, or 0.4%, to $72.86 a barrel while energy-related equities had the session's best gains.
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NEW YORK (

TheStreet

) -- Crude oil futures got a lift from a

broad market rally and a weaker dollar Wednesday, while the basic materials and energy sectors showed the session's strongest gains.

The July oil contract on the Nymex gained 28 cents, or 0.4%, to settle at $72.86 a barrel, after trading as high as $73.93. The dollar, meanwhile, weakened 0.2% against a basket of foreign currencies, according to the dollar index.

Stocks rebounded during Wednesday's session after spiraling to a dismal close on Tuesday. Market sentiment improved on news that the National Association of Realtors said pending home sales surged 6% in April. Additionally, March's increase was upwardly revised to 7.1%, from initially reported growth of 5.3%.

"We've had some bullish economic numbers ... and that has allowed energy markets to rally a little on the idea that maybe we've got some signs the economy is picking up, which will be pushing up demand," said Darin Newsom, energy analyst at Telvent DTN, who also cited Tuesday's better-than-expected construction spending and manufacturing figures. "I'm still not quite convinced of that."

"I'm thinking this is short-term buying rather than longer term. If I look at the technicals, crude is on a short-term rally within a longer-term selloff."

"I want to see more strength in the

Dow

," he continued. "I think we have more room to come down," later adding, "fundamentally, we really have to see these spreads come down ... without that, it's going to be difficult to see these markets turn around long term."

Late Wednesday, the American Petroleum Institute reported a deeper-than-expected decline of 1.42 million barrels to crude oil stocks in the week ended May 28. Analysts had been expecting a drop of 1 million barrels, according to a Platts survey of analysts.

On Thursday morning, the Energy Information Administration reports on both natural gas storage levels and oil inventories. Analysts polled by Platts predict an increase of 90 to 94 billion cubic feet to natural gas supplies.

In addition to a decline in crude inventories, analysts also project a build of 750,000 barrels to gasoline stocks and an increase of 950,000 to distillates, according to Platts. Stockpile figures are being released a day later than usual because of Monday's Memorial Day holiday.

The major U.S. indices ended near their highs of the session with the Dow up by 226 points, and each index showing gains of more than 2%. Oil-related names, in particular, were snapping back a day after widespread reports focused on

TST Recommends

BP's

(BP) - Get Report

the most

recent failure to stem a massive oil leak in the Gulf of Mexico. News also broke late Tuesday of a

criminal probe into the oil giant , which also dragged on the energy sector. But Wednesday, the NYSE Arca Oil index was added 3.2, while the Philadelphia Oil Service Sector index gained 5.5%.

On the Dow, shares of

Exxon Mobil

(XOM) - Get Report

rose by $1.52, or 2.6%, to $60.77 and

Chevron

(CVX) - Get Report

gained $1.84, or 2.6%, to $74.13.

Also on the Nymex, July natural gas futures added 18 cents, or 4.1%, to settle at $4.42 per million British thermal units. The July heating oil contract gained 4 cents, or 1.8%, to settle at $2.01 a gallon, while the July gasoline contract also improved by 4 cents, or 2.2%, to settle at $2.03 a gallon.

--Written by Sung Moss and Melinda Peer in New York

.