* Egypt announces Gaza truce from 1900 GMT
* Drop in U.S. crude, fuel stocks offers limited support
* Trade begins to thin ahead of U.S. Thanksgiving holiday
(Recasts, adds closing prices, adds byline)
NEW YORK, Nov 21 (Reuters) - Oil ended higher after thin,
volatile trading on Wednesday, as late-day short-covering ahead
of a U.S. holiday offset earlier relief over a ceasefire that
ended eight days of fighting in the Gaza strip.
While U.S. financial markets drifted quietly toward
Thursday's Thanksgiving holiday, oil prices were whipsawed
between fears of a deepening conflict between Israel and Hamas
and hope for a ceasefire. Volatility was exacerbated by subdued
oil market activity, with turnover about a third below average.
Prices rose by more than $1.50 a barrel early in the day
after an explosion on a Tel Aviv bus. But a truce announced at
midday eased concerns that a week of intensive Israeli fire on
the Gaza Strip and militant rocket attacks out of the enclave
could widen, engulfing regional oil exporters.
U.S. government data showing an unexpectedly large drop in
weekly fuel stockpiles -- as well as modestly upbeat economic
indicators -- gave an early boost to gasoline and heating oil
prices, which outperformed crude. But ultimately it was too
little to offset a sense of pre-holiday malaise.
"I'm seeing the market's pulse become fainter and fainter,"
said Tim Evans, energy analyst for Citi Futures Perspective in
New York. "I think some traders are just getting an early start
on the Thanksgiving holiday rather than putting on risk or even
reacting to the headlines."
The current Middle East turmoil is more likely to be a
"limited conflict" similar to the war with Hezbollah in July
2006 than a wider, more prolonged one, Evans said.
Brent crude futures gained $1.03 or 0.9 percent to
settle at $110.86 a barrel, bouncing off a midday low of $109.55
barrel shortly after the Gaza truce was announced. Trading
volume of around 400,000 lots was a quarter below the average.
U.S. crude oil futures rose 63 cents or 0.7 percent
to settle at $87.38 a barrel on Wednesday, about 50 cents below
the session high. Benchmark gasoline and heating oil
futures each rose by more than 1 percent.
Egyptian Foreign Minister Mohamed Kamel Amr announced that a
ceasefire would come into force at 9 p.m. (1900 GMT), halting a
conflict that has killed more than 140 Palestinians and five
Israelis. U.S. Secretary of State Hillary Clinton said Egypt was
assuming "responsibility, leadership" in the region.
Israeli Prime Minister Benjamin Netanyahu told U.S.
President Barack Obama he was ready to give the ceasefire a
chance, but that "more forceful action" might be needed if it
failed, according to a statement from his office.
Although little oil is produced in Israel, concern that
major hydrocarbon producing Arab nations could become involved
in the conflict has aroused fears that supplies from the Gulf
can be disrupted.
If the truce holds, however, focus may return to the
market's moribund underlying fundamentals. Euro zone finance
ministers ended a meeting in Brussels on Wednesday without
agreement on the next tranche of loans to Greece.
"The Middle East tensions could continue to give prices some
life in the near term but we suspect that bearish economic
factors will be dominant," said Jeremy Friesen, commodity
strategist at Societe Generale in Hong Kong.
And U.S. economic data offered limited cause for hope.
Manufacturing grew in November at its quickest pace in five
months and new jobless claims dropped, but consumer sentiment
showed only a marginal improvement.
U.S. crude and refined product stocks fell last week as
plants processed more crude and imports dropped, data from the
U.S. Energy Information Administration showed.
Total U.S. crude oil inventories fell 1.47 million barrels
in the week to Nov. 16 to 374.47 million barrels, after analysts
polled by Reuters had forecast a build of 900,000 barrels.
U.S. inventories of distillates, which include diesel and
heating oil, fell 2.68 million barrels to 112.84 million
barrels, compared with forecasts for a smaller,
1.4-million-barrel drawdown. Along the East Coast, distillate
inventories fell 1.63 million barrels to the lowest levels since
"The fall in inventories comes on the back of improving
demand and continued high levels of exports," analysts at Energy
Aspects said in a report. More cold weather in the Northeast is
likely to deepen the deficit in regional fuel stocks.
(Additional reporting by Simon Falush and Shadia Nasralla in
London, Jessica Jaganathan in Singapore; editing by William
Hardy, Keiron Henderson, Marguerita Choy, Leslie Gevirtz and Bob