Crude futures prices surged above $48 per barrel Wednesday as oil production and shipping disruptions caused by Hurricane Ivan caused domestic supplies to shrink more than expected.

Light crude for November delivery rose $1.59 to settle at $48.35 per barrel on the New York Mercantile Exchange (search).

Crude futures are just 35 cents below the Aug. 19 peak Nymex settlement price. But when adjusting for inflation, today's prices are about $9 per below the level reached just before the first Gulf War.

The Department of Energy (search) reported Wednesday that the nation's supply of crude fell by 9.1 million barrels last week, bringing inventories to 269.5 million barrels, or 5 percent below last year. Gasoline and heating oil inventories also shrank, sending futures prices for those fuels soaring.

"You don't get any more bullish than this report," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

While the domestic supply troubles caused by Hurricane Ivan are expected to dissipate, analysts said the underlying tightness in global oil markets is not — and that is why prices have been soaring all year. Oil has also been more expensive due to concerns about potential output problems in Iraq, Russia and other key oil-producing nations.

The country's sharply reduced oil supply is significant because it now falls below the estimated "lower operating inventory" level of 270 million barrels set in 1998 by the National Petroleum Council, a consortium of oil and gas executives that advises the Energy Department (search). At that level, the refining industry has "diminished flexibility" to handle unanticipated disruptions, according to the NPC.

But the Energy Department said in its weekly commentary on oil markets that the immediate supply crunch would be temporary, since import facilities closed before and during the hurricane are now up and running again. "We should see a large increase in crude oil imports this week and consequently a substantial rise in crude oil inventories," the agency said.

Still, about 9.1 million barrels of oil production in the Gulf of Mexico have been lost since last Monday and daily output in the region remains 34 percent below normal at about 1.1 million barrels per day, according to the federal Minerals Management Service. That could keep the domestic supply-demand balance tight for weeks, analysts said.

U.S. oil supplies typically grow this time of year as gasoline demand tapers off and refiners temporarily shut down to perform maintenance. But with oil imports down by 1.5 million barrels per day last week due to shipping delays, refiners were forced to use oil held in storage in order to produce gasoline, heating oil and other fuels.

The amount of excess oil production available worldwide is about 1 percent of total demand of about 82 million barrels a day, leaving the industry little breathing room in the event of a prolonged supply interruption. Energy traders have therefore been quick to respond to any news that could potentially crimp the flow of oil, even for a short period of time.

The nervousness appears to have magnified the market's response to the fact that U.S. oil supplies are now below the so-called lower operating inventory.

Many analysts believe the level set in 1998 is not as applicable today. They argue that advances in information technology and logistics have enabled the oil industry, like much of the U.S. economy, to operate efficiently with less of an inventory cushion than ever before.

Others caution, however, that by shrinking the amount of oil they keep in storage, in order to reduce costs, refiners have heightened their vulnerability to temporary supply disruptions and, at the same time, increased price volatility.

The government's weekly petroleum inventory report showed a 2.8 million barrel decline in U.S. gasoline supplies and a 1.5 million barrel drop in available distillate fuel, which includes heating oil, diesel and jet fuel. The draw reflects the impact of temporary refinery shutdowns along the Gulf Coast as employees were evacuated before Ivan's arrival as a safety measure.

October heating oil futures soared 4.15 cents to $1.3444 per gallon — a new Nymex high — while gasoline futures climbed 5.34 cents to $1.3430 per gallon.

In London, November Brent crude futures rose $1.54 cents to $44.93 per barrel on the International Petroleum Exchange (search).