The price of oil rose to a new record above US$96 a barrel yesterday after a surprise drop in US crude stockpiles raised concerns about supplies for coming winter demand. Other energy futures also gained.
It was the second week in a row the US Energy Information Administration reported a sharp and unexpected drop in oil inventories.
"The decline in US crude oil inventories has been a key driver of oil prices," said David Moore, commodity strategist at the Commonwealth Bank of Australia in Sydney.
Light, sweet crude for delivery next month increased to a high US$96.24 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore before dropping to US$95.59 a barrel.
Prices have reached inflation-adjusted highs set in early 1980. Depending on the how the adjustment is calculated, US$38 a barrel then would be worth US$96 to US$101 or more today.
unknown area
"We are stepping into an unknown area. Nobody wants to sell [given the fear of a] further rise," broker Ken Hasegawa of Fimat Japan told Dow Jones Newswires.
Nymex crude contract for next month rose US$4.15 on Wednesday to US$94.53 a barrel -- the highest-ever settlement.
Brent crude futures for next month also surged to a new trading record of US$91.63 a barrel on Thursday on the ICE futures exchange in London, up US$1 from the previous session, before retreating to US$91.37.
In its weekly inventory report, the US Energy Department's Energy Information Administration (EIA) 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.
"The report acted to solidify concerns about the possibility of tightening market conditions ahead of the northern winter," Moore said.
Much of that decline was due to a big drop in crude supplies at a closely watched oil terminal in Cushing, Oklahoma.
under pressure
Cushing supplies have been under pressure in recent months because of 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.
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 half a 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.
The US Federal Reserve's move to cut interest rates by a quarter point also supported prices.
Interest rate cuts generally support oil prices because they tend to send the US dollar downward.
Oil futures have been driven to record levels in recent months partly because they offer a hedge against a weak dollar.
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