* Fed raises discount rate to 0.75 pct from 0.50 pct
* U.S. distillate stocks drop; crude, gasoline rise - EIA
* French unions extend refinery strikes into second day
* IAEA fears Iran working now on nuclear warhead
(Recasts, adds Fed decision)
By Rebekah Kebede
NEW YORK, Feb 18 (Reuters) - Oil pared gains in late
Thursday trade after the U.S. Federal Reserve announced it was
raising the interest rate it charges banks for emergency
loans.
The Fed said it was raising the discount rate to 0.75
percent from 0.50 percent, citing improvement in financial
market conditions, sending U.S. stock markets lower on concerns
about thinning liquidity. [] []
Analysts said the move could drive some investors out of
oil, especially those who were invested in passive, long only
oil and commodity vehicles.
"The people who are going to be affected are the big
investors who have positions in index funds and exchange traded
funds, they may liquidate long position if they now seeing that
the inevitable climb in interest rates has already started,"
said Peter Beutel, president of Cameron Hanover in New Canaan,
Connecticut.
U.S. crude oil futures <CLc1> traded up $1.05 to $78.38 a
barrel in electronic trade at 5:13 p.m. (2213 GMT), after
earlier settling up $1.73 at $79.06, the highest settlement
since Jan. 14.
Brent crude <LCOc1> gained $1.51 to settle at $77.78 a
barrel, later trading down to $77.18 after the Fed
announcement.
Earlier, crude prices were bolstered by a government report
showing a drop in U.S. distillate supplies and concerns OPEC
member Iran may be working to develop a nuclear-armed missile.
U.S. distillate inventories fell by 2.9 million barrels
last week, according to weekly data from the U.S. Energy
Information Administration, nearly double the 1.5 million
barrel draw forecast by analysts. []
"The bottom line is that the Department of Energy report
had a number of little kernels of bullish information, starting
with the distillate draw being larger than expected," said
Cameron Hanover's Beutel.
Heating oil stocks fell 1.4 million barrels as chilly
weather on the Eastern Seaboard increased demand for the fuel,
the EIA data showed. Crude oil and gasoline inventories rose
3.1 million barrels and 1.7 million barrels, respectively,
above analysts' expectations.
Gasoline futures led the NYMEX oil complex.
"There is also the seasonal factor in that people are
looking at the upcoming driving season, and that's helping
boost gasoline," said Richard Ilczyszyn, senior market
strategist, at Lind-Waldock in Chicago.
The market was also watching news that the U.N. nuclear
watchdog fears Iran may be working now to develop a
nuclear-armed missile, throwing independent weight behind
Western suspicions of an active Iranian weapons program and
stirring concerns about a potential supply disruption from the
oil-exporting nation. []
Oil prices were also supported by news that workers at
Total's <TOTF.PA> six French oil refineries extended their
strike action into a second day on Thursday, protesting the
potential permanent closure of one of the plants.
Workers plan to halt production at five other refineries in
the next 24 hours, sources told Reuters. [] Total
is a major European gasoline exporter to the United States.
(Additional reporting by Robert Gibbons and Gene Ramos in New
York, Ikuko Kurahone in London, Seng Li Peng in Singapore;
Editing by Marguerita Choy and Jim Marshall)
