UPDATE 8-Oil rises to near $73 after U.S. crude stock drop

                                
 * U.S. crude stocks fell by 3.7 mln barrels last week-EIA
                                
 * Fed interest rates held near zero to spur economic     
recovery
                                
 * OPEC seen unlikely to lift output targets at meeting
                                
 * Iranian missile test draws criticism from U.S., U.K.
 (Adds detail throughout; updates prices.)
                                
 By Joshua Schneyer
                                
 NEW YORK, Dec 16 (Reuters) - Oil surged 2.8 percent to near
$73 a barrel on Wednesday after data showed crude stocks in the
United States fell more than expected last week, easing
concerns about flagging demand.
                                
 Crude inventories declined by 3.7 million barrels in the
week to Dec. 11, according to the U.S. Energy Information
Administration, eclipsing analyst forecasts for a more modest
draw of 1.8 million barrels. [EIA/S]
                                
 Crude for January delivery <CLc1> settled up $1.97 a barrel
at $72.66, after rising to as much as $73.55 a barrel earlier.
London Brent crude <LCOc1> rose $1.50 to $73.55 a barrel.
                                
 The unexpectedly large drop in U.S. crude stocks helped to
narrow the discount of NYMEX crude to Europe's benchmark Brent.
NYMEX barrels traded within 19 cents of Brent barrels on
Wednesday, following discounts of more than $1.00 a barrel on
every other trading day this month. <CL-LCO1=R>
                                
 A 2.9-million-barrel draw in U.S. distillate stocks, which
include heating oil and diesel, was almost five times bigger
than the 600,000-barrel dip analysts expected, while gasoline
stocks grew less than expected.
                                
  The data showed that part of a U.S. fuel surplus is being
worked off after demand was battered this year by the
recession.
                                
 "The best news here, in terms of market stabilization, is
the big draw in distillates," said Brad Samples, analyst at
Summit Energy in Louisville, Kentucky.
                                
  Oil rose for a second day after a nine-session rout in
which prices plummeted 11.3 percent from levels above $78 a
barrel on Dec. 1. Analysts attributed the fall to persistently
low fuel demand and rising U.S. crude inventories.
                                
  <-------------------------------------------------------
                                
 Relationship between U.S. crude stocks and the oil price
                                
 http://link.reuters.com/dyd37g
                                
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 The U.S. Federal Reserve opted on Wednesday to hold
interest rates near zero amid "subdued" inflation risks, and
said rates should remain exceptionally low for an extended time
to help spur an economic recovery. [ID:nTRU002430]
                                
 Oil pared earlier gains following the afternoon Fed
statement, as the U.S. dollar <.DXY> firmed to trade almost
unchanged against a basket of foreign currencies, after
weakening earlier. A slide in the dollar often pushes oil
higher, making the commodity cheaper for holders of foreign
currencies.
                                
 OPEC's No. 2 oil exporter Iran tested a long-range missile
earlier Wednesday, with a reported range of 1,250 miles that
would put Israel and U.S. military bases within striking
distance. The test drew criticism from the U.S. and U.K
governments, which are among Western powers considering new
sanctions on Iran over its nuclear program. [ID:nWBT013420]
                                
 The Organization of the Petroleum Exporting Countries
(OPEC), whose daily production meets around a third of global
crude demand, will convene in Angola to discuss output policy
on Dec. 22.
                                
 But few expect OPEC to scale back the 4.2 million barrels a
day in production cuts the group has agreed upon since last
year. Most members are comfortable with the current range of
oil prices.
                                
 Oil has risen sharply since collapsing toward $32 a barrel
at the peak of the financial crisis last December, but it's
still a far cry from record prices above $147 a barrel reached
in July 2008.
                                
 "Prices are back very close to the $75 price level that
they (OPEC members) view as a sweet spot," said Chris Jarvis,
senior analyst at Caprock Risk Management in New Hampshire.
                                
 The producer group said on Tuesday it sees the oil market
staying weak until the second half of next year, as a recovery
in oil demand is countered by a huge volume of excess supply
amassed during the economic crisis. [ID:nLDE5BE1V0]
 (Additional reporting by David Sheppard in London, Edward
McAllister, Eileen Moustakis and Robert Gibbons in New York and
Jennifer Tan in Singapore; Editing by Christian Wiessner)