Oil rises toward $81 on crude stock drop, Fed decision

NEW YORK (Reuters) - Oil rose on Wednesday toward $81 a barrel after government data showed an unexpected decline in U.S. crude inventories, and the U.S. Federal Reserve said it plans to keep interest rates low.

U.S. crude for December traded up $1.12 to $80.72 a barrel by 2:56 p.m. EST (1956 GMT), after settling up $1.47 on Tuesday. Brent crude rose $1.09 to $79.19 a barrel.

Data from the U.S. Energy Information Administration showed a 4 million barrel decline in crude inventories in the world's biggest consumer in the week to Oct. 30, countering analyst expectations for a build.

The draw helped lift oil markets, which have been eager to see signs of a turnaround in the economy and flagging fuel demand.

The Fed's Open Market Committee expressed confidence that a U.S. economic recovery was building -- which could spur more demand for crude -- but it stuck to an earlier commitment to keep interest rates near zero for "an extended period" to help usher the economy out of recession.

Analysts had warned earlier that oil prices could fall if the Fed signaled any intention to boost the cost of borrowing.

Analysts said the EIA inventories report showed U.S. fuel demand was still slow to recover, since oil product stocks posted only modest drawdowns last week in spite of a 1.2 percent drop in refinery utilization rates.

"The crude drop has boosted the market, but the report can't be seen as too bullish. The fact is refinery rates dropped more than a percent and we still didn't see a major drop in product inventories," said Gene McGillian, analyst at Tradition Energy, Stamford, Connecticut.

"Refiners don't see the need to push through more crude, because demand hasn't been recovering at the pace that some expected."