July 8 (Bloomberg) -- Crude oil rose to a five-week high as increased buying by hedge funds eclipsed reports that U.S. oil and petroleum product inventories gained in the week ended Friday as refiners boosted their operating rates.

Crude oil supplies rose 100,000 barrels to 305 million, the Energy Department said. OAO Yukos Oil Co., Russia's biggest oil exporter, has said that output may fall because of a tax dispute. Yukos pumped 1.7 million barrels a day during the first quarter, almost as much as Iraq. Oil shipments from Iraq and Nigeria have been disrupted during the past week.

``The market is discounting the present supply reality in favor of the potential for continued supply disruptions,'' said John Kilduff, senior vice president of energy risk management at Fimat USA Inc. in New York. ``Several major supply sources remain vulnerable due to terrorism or civil unrest, forcing everyone to pay up for what might become a precious commodity.''

Crude oil for August delivery was up $1.22, or 3.1 percent, at $40.30 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices were 33 percent higher than a year earlier and down 5.1 percent from a record $42.45 a barrel on June 2. Futures reached $40.10 a barrel, the highest intraday price since June 3.

In London, the August Brent crude oil futures contract was up $1.14, or 3.1 percent, at $37.75 a barrel on the International Petroleum Exchange.

``It's hard to find a single reason for this rally except to say that the funds are coming back in buying and everyone is piling in,'' said Justin Fohsz, a broker with Starsupply Petroleum Inc. in Englewood, New Jersey.

Speculator Positions

Hedge-fund managers and other large speculators reduced net- long positions in New York crude-oil futures and options to the lowest in eight months in the week ended June 29. Prices have surged 13 percent since that date.

Speculative long positions, or futures and options bought, outnumbered shorts by 47,000 contracts in the week covered by the report, down 29 percent from a week earlier, the U.S. Commodity Futures Trading Commission said in its weekly Commitments of Traders report. It was the fourth decline in five weeks and left net-long positions at the lowest since the week ended Nov. 4.

Inventory Report

Crude-oil supplies were expected to increase by 750,000 barrels, according to the median estimate in a Bloomberg survey of 14 analysts.

Gasoline supplies rose 1 million barrels to 206.1 million, the report showed. Analysts expected a decline of 1 million barrels. Gasoline demand rose 2.2 percent to 9.4 million barrels a day, the highest rate since the week ended Oct. 24.

Refineries operated at 96.7 percent of capacity last week, up 0.6 percentage point from the week before. It was the highest operating rate since the week ended May 30, 2003.

``The refiners are chugging along and if they continue to operate at this rate there will be further big builds in distillate,'' said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

Supplies of distillate fuel, which include heating oil and diesel, rose 3.1 million barrels to 114 million, the highest since the week ended Feb. 6.

The department released its weekly petroleum inventory report at 10:30 a.m. Washington time, a day later than usual because of the U.S. Independence Day holiday.

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