Oil futures achieved a new record above $94 a barrel after an unexpected drop in crude oil inventories for the second week in a row.
In its weekly inventory report, the Energy Department's Energy Information Administration said oil supplies fell by 3.9 million barrels last week. Analysts surveyed by Dow Jones Newswires, on average, had expected an increase of 100,000 barrels.
Much of that decline was due to a big drop in crude supplies at a closely-watched oil terminal in the Midwest.
"The market is clearly reacting to the larger than expected 3.9 million barrel drop in crude oil inventories, including a stunning 3.1 million barrel drop at the Cushing, Oklahoma, delivery point for the Nymex (crude) futures," wrote Tim Evans, an analyst at Citigroup Inc. in New York, in a research note.
Cushing supplies have been under pressure in recent months due to differences in the price between front-month oil contracts and those for delivery in future months. This price difference, or spread, has given storage tank owners a financial incentive to sell their oil, rather than hold it in inventory. Analysts have also blamed falling Cushing supplies, in part, for the rally in which oil prices have jumped 35 percent since August.
"It's all about Cushing," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois. "That's going to just keep ... investment capital roaring into this market."
Light, sweet crude for December delivery rose $3.87 to $94.25 a barrel on the New York Mercantile Exchange after rising as high as $94.56, a new trading record.
Other energy futures followed oil's lead. November gasoline jumped 8.03 cents to $2.3374 a gallon on the Nymex. Gasoline prices were also supported by news of a fire Wednesday at a 172,000 barrel-per-day London refinery owned by Swiss-based Petroplus Holdings AG.
November heating oil added 8.99 cents to $2.5145 a gallon. November gas and heating oil futures expire Wednesday afternoon.
December natural gas rose 26.6 cents to $8.287 per 1,000 cubic feet on the Nymex.
In London, December Brent crude rose $3.06 to $90.50 a barrel on the ICE Futures exchange.
The EIA also reported that refinery activity fell by 0.9 percentage point last week to 86.2 percent of capacity. Analysts had expected an increase of 0.5 percentage point.
Supplies of gasoline rose last week by 1.3 million barrels. Analysts expected a 400,000-barrel decrease.
And inventories of distillates, which include heating oil and diesel fuel, rose by 800,000 barrels. Analysts had expected a 1 million barrel decrease.
Crude imports rose last week by an average of 278,000 barrels a day to 9.4 million barrels a day. Gasoline imports jumped last week by 400,000 barrels a day to an average of 1.2 million barrels a day.
Gasoline demand dipped by 18,000 barrels last week last week, but has risen over the last four weeks by about 0.3 percent over the same period last year.
It was the second week in a row the EIA reported a sharp and unexpected drop in oil inventories. Last week's 5.3-million barrel decline sparked a 10 percent price rally. It could take several days for the full impact of this week's report to be felt, Ritterbusch said.
"As soon as I saw the drop in Cushing stocks, it looked to me like (this) has $95 (a barrel oil) written all over it," Ritterbusch said.
John Duff, manager of the EIA's weekly report, said part of the drop in Cushing inventories likely occurred during the previous week, but that reporting was delayed due to a late or incomplete survey response.
Next up for oil investors is the Fed. Interest rate cuts generally support oil prices because they tend to send the dollar downward; a larger than expected cut would further weaken a dollar already at multiple-decade lows against major currencies. Oil futures have been driven to record levels in recent months partly because they offer a hedge against a weak dollar.
Many investors expect the Fed to deliver a quarter-point cut.
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