Oil prices soared to $44 a barrel on Wednesday, ending a streak of heavy losses, as a U.S. government report showed crude oil stocks falling to the lowest level in five months.

U.S. light crude settled $1.88 higher at $44 a barrel on the New York Mercantile Exchange (search), after racing as high $44.40, $5 off a record high of $49.40 struck last month. London's Brent crude was up $1.86 to $41.47 a barrel.

Prices jumped after the Energy Information Administration (search) said in a weekly report crude stocks dropped 4.2 million barrels last week to 287.1 million barrels, the lowest level since March.

Crude stocks in the world's largest energy consumer have fallen by 18 million barrels, or 6 percent, since early July as refineries run above 95 percent of capacity to meet summer vacation driving demand. Gasoline and distillate fuel stocks both rose, the EIA said.

The crude stock drop reinforced how stretched oil supplies are at a time when global demand is growing at the fastest rate in 24 years.

"The world is consuming oil like it's going out of style," said Phil Flynn, an analyst at Alaron Trading in Chicago. "It's the only way you can explain these numbers. Imports were very strong, yet we still fell substantially on crude oil."

The EIA said world crude production was running at about 99 percent of capacity, spelling continued high prices into the foreseeable future.

"Any industry in which production is running at 99 percent of capacity to meet demand is likely to experience price pressure and there is no reason to expect that crude oil markets would not reflect these same fundamental economic forces," EIA said in its weekly review of the oil market.

Traders got a reminder of possible disruption to oil flows with news that an oil pipeline was on fire in northern Iraq on Wednesday in the vicinity of the main Kirkuk-Ceyhan export route.

A Reuters photographer saw smoke rising from the pipeline in the lawless Hadar area west of the city of Mosul. There was no confirmation on whether the export pipeline that runs from the Kirkuk fields to Turkey was the one that was on fire.

Iraq this week resumed shipments of northern Kirkuk crude from Turkey's export terminal Ceyhan after a three-month stoppage.

Crude exports from southern Iraq recovered on Tuesday to near-full capacity following repairs to sabotaged pipelines. Exports were running at 1.7 million barrels per day, just below the 2 million bpd level before the last attacks.

Dealers were also set on edge by Hurricane Frances, a powerful storm approaching the Bahamas and Florida that could potentially cross next week into the Gulf of Mexico, home to 50 percent of U.S. oil and natural gas production.

The Organization of the Petroleum Exporting Countries (search) is set to raise its formal oil output ceiling to tame prices when it meets on Sept. 15, a senior OPEC official based in the Middle East said on Wednesday.

"OPEC will raise its ceiling in Vienna, but the new production level will be decided at the meeting," he told Reuters.

Delegates in OPEC have suggested the cartel could raise its 26 million bpd ceiling by 1 million to 2 million bpd.

The official reckoned the 10 OPEC producers bound by quotas are now pumping "almost at full blast" at 27.5 million bpd, 1.5 million bpd above formal limits.