* U.S. crude stocks down 4.2 mln bbls last week -EIA
* Reuters poll had forecast 2.5 mln draw, API 5.1 mln
* Market fails to test $50 level as profit-taking sets in
* Gasoline futures slide after EIA reports 2 mln-bbl build
(Adds settlement prices, updates to close)
By Barani Krishnan
NEW YORK, May 25 (Reuters) - Oil prices rose about 2 percent
on Wednesday after the U.S. government reported a
larger-than-expected drop in crude inventories, but
profit-taking after the data kept prices below the $50 a barrel
level that oil bulls had been hoping for.
The U.S. Energy Information Administration said crude
inventories fell 4.2 million barrels in the week to May 20.
While the decline was steeper than the 2.5 million barrels
forecast by analysts in a Reuters poll, it was not as much as
the 5.1 million expected by trade group American Petroleum
Institute. EIA/S API/S
Crude futures fell briefly after the EIA data showed the
steepest weekly drop in seven weeks, then consolidated and
traded at the lower end of the day's gains.
Brent LCOc1 settled up $1.13, or 2.3 percent, at $49.74 a
barrel. Prices climbed as high as $49.96 in post-settlement
trading.
U.S. crude's West Texas Intermediate (WTI) CLc1 settled
94 cents higher at $49.56, after peaking at $49.62, a
seven-month high.
Profit taking heading into the U.S. Memorial Day weekend
also pressured prices, traders said.
Oil bulls have been hoping in recent weeks that crude would
rise to $50 a barrel or more, after global crude flows declined
nearly 4 million barrels per day due to wildfires in Canada's
oil sands region, a near economic meltdown in OPEC member
Venezuela and a spate of violent attacks against the Libyan and
Nigerian energy industries.
"While we do feel the rally could go slightly further and
test the psychological $50 level, we also think the rally has
been priced in, especially with the impact expected from
Canadian wildfires," said Tariq Zahir, crude trader and
portfolio manager at Tyche Capital Advisors in New York.
"So, we wouldn't be surprised to see more profit taking from
the longs, especially since there was no immediate
follow-through in buying after the data."
U.S. gasoline futures RBc1 fell nearly 1.5 percent to
around $1.63 a gallon after the EIA reported that stockpiles of
the motor fuel USOILG=ECI rose over 2 million barrels last
week, confounding analysts' expectations for a 1.1
million-barrel drop.
"Gasoline looks to be the weakest horse right now and the
momentum of the recent rally that started on May 10th now looks
to be breaking down," said David Thompson, executive
vice-president at commodities broker Powerhouse in Washington.
He said the picture could worsen for gasoline if futures for
the motor fuel break below the $1.60 support. "The bears will be
encouraged to increase their selling pressure."