Crude oil futures prices climbed Wednesday on the back of a rally in heating oil after the U.S. government reported that the nation's supply of distillate fuel declined for the ninth consecutive week.

The data dashed traders' hopes of a long-awaited build in distillate inventories, which encompass heating oil, diesel and jet fuel, and overshadowed the fact that inventories of crude rose for the eighth straight week, according to the Energy Department (search) report.

After fluctuating above and below the $46 a barrel level through much of the day, light crude for December delivery settled 73 cents higher at $46.84 per barrel on the New York Mercantile Exchange (search). Heating oil futures surged 8.45 cents, or 6 percent, to $1.4114 per gallon.

Despite Wednesday's rise, oil prices are about $8 cheaper than the record settlement high of $55.17 per barrel set in late October. The steady increase in oil supplies has calmed the market, though traders are hesitant to declare the end of high prices given that winter is just around the corner.

"It's hard to say whether crude is going to bottom out here or not," said Tom Bentz, a broker with BNP Paribas Commodity Futures in New York.

Crude supplies now stand at 292.3 million barrels, about even with last year at this time. But the supply of distillate fuel is at 114.6 million barrels, or 14 percent below year ago levels. While the quantity of high-sulfur distillate used for heating oil actually grew by 700,000 barrels last week, it is still 16 percent below year ago levels.

"Refineries are trying to get production up. The problem is they're behind the eight ball already," Bentz said.

Even though the weather this fall hasn't been very cold by historical standards, "it's hard to build heating oil stocks at this time of year," said Aaron Kildow, a broker with Prudential Financial Inc. in New York. "We're going into the heating season."

Compounding the problem are low distillate fuel inventories in Europe, "making less available for export to the United States should a cold snap require increased supply," the Energy Departments said in its analysis of the weekly data.

That said, the pre-winter supply fears that gripped the market in September and October have dissipated significantly as oil supplies continue to grow, thanks to high levels of imports and rising production in the Gulf of Mexico, where output had been hobbled for weeks following Hurricane Ivan (search).

As of Monday, nearly 30 million barrels of oil production had been lost in the Gulf of Mexico since mid-September, and daily output in the region is still 12 percent below normal.

"Crude stocks are building because the Organization of Petroleum Exporting Countries (search) are pumping oil at record levels and most incremental barrels are likely to end up on the U.S. market," Energyintel's George Orwel said in a research note Wednesday.

While Nymex crude futures prices are about 48 percent higher than a year ago, they would have to reach $90 per barrel to meet the inflation-adjusted peak set in 1980. In London, Brent crude futures rose 47 cents to $42.76 on the International Petroleum Exchange.

Markets have been tense all year due to limited excess production capacity and surprisingly strong demand, notably from China. The tight production capacity leaves little wiggle room in the event of a production outage, which is why traders are paying such close attention to events in key producing nations such as Nigeria, Russia and Iraq.

_In Russia, embattled oil giant OAO Yukos said it has paid just under a quarter of its total $18.4 billion back tax bill, but said the government has been unresponsive to its debt-settlement proposals. Yukos said Moscow's all-out assault to collect back taxes could force it to halt its daily output of over 2 million barrels.

_In Nigeria, rebels vying for the oil-rich Niger Delta stopped handing over their weapons to a government-appointed disarmament commission claiming the process was not transparent. The same militia had vowed in September to launch a "full-scale armed struggle" against multinational oil companies in the world's No. 7 oil exporter.

_In Iraq, saboteurs attacked an oil pipeline and an oil well near northern Kirkuk on Wednesday, oil officials said.

In other Nymex trading, natural gas futures rose 15.9 cents to $7.283 per 1,000 cubic feet, while gasoline futures gained 3.4 cents to $1.256 per gallon.