Oil rises for 3rd day on inventory drop, Fed

NEW YORK (Reuters) - Oil prices rose by 1 percent on Wednesday after government data showed an unexpected decline in U.S. crude inventories, and the U.S. Federal Reserve said it planned to keep interest rates low.

U.S. crude for December delivery rose 80 cents to settle at $80.40 a barrel, in a third consecutive day of gains. In London, Brent crude settled up 78 cents at $78.89 a barrel.

Data from the U.S. Energy Information Administration showed crude inventories decline by 4 million barrels in the world's biggest consumer in the week to October 30, countering analyst expectations for an increase. <EIA/S>

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

The Federal Reserve'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, as oil product stocks posted only modest drawdowns last week, in spite of a 1.2 percentage point 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, an analyst at Tradition Energy in 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."