NEW YORK – Crude oil prices rose by almost $2 a barrel on Wednesday after the government reported a drop in U.S. crude inventories last week, and analysts said they expect U.S. oil demand to increase as the nation recuperates from Hurricane Katrina (search).
Light, sweet crude for October delivery gained $1.98 to settle at $65.09 a barrel on the New York Mercantile Exchange (search).
October Brent crude futures on London's International Petroleum Exchange rose $1.76 to settle at $63.37 a barrel.
Crude inventories fell 6.6 million barrels to 308.4 million in the week ending Sept. 9 from the previous week, according to the Department of Energy's (search) weekly report released Wednesday. Crude supplies are still about 11 percent higher than a year ago.
Gasoline inventories rose by 1.9 million barrels to 192 million, about 7 percent lower than year-ago levels. Distillate supplies, which includes heating oil, fell 1.1 million barrels to 133.3 million — more than 3 percent higher than a year ago.
The drops in crude and distillate stocks fell in line with most analysts' predictions, but the rise in gasoline stocks came as a surprise. Lower demand for gasoline over the Labor Day weekend confounded gasoline supply expectations. Retail gasoline averaged at $2.94 per gallon on Wednesday, but damage to Gulf Coast refineries and pipelines by Hurricane Katrina pushed retail gas prices to historic highs in the past two weeks. Self-serve regular gasoline averaged more than $3 a gallon for the first time ever in the two weeks ended Sept. 9, according to the nationwide Lundberg survey of 7,000 gas stations across the country released Sunday.
Analysts said the high retail price motivated many Americans to cancel travel plans.
Gasoline rose 4.6 cents to $1.94 a gallon on the Nymex but was off its intraday high of $1.945. Heating oil gained 8.5 cents to $1.925 a gallon.
Analysts also said that the decline in the price of oil from its recent highs may cause the oil ministers of the Organization of Petroleum Exporting Countries (search), who meet in Vienna next Monday, to maintain current quotas.
Vienna's PVM Oil Associates said the recent drop in prices that has sent crude down more than $7 below the intraday high of $70.85 reached on Aug. 30 could take the steam out of OPEC and other international efforts to cool the energy markets.
Meanwhile, reports of hampered recovery efforts in the U.S. Gulf of Mexico after Katrina continued to trickle in.
Oil producers are scrambling to find their way around damage to key pipelines and an onshore storage facility that threatens to bottle up their output indefinitely. Owners of giant deepwater platforms say they are ready to start pumping oil but cannot get their crude ashore because of the obstacles.
"The ability to return production from our deepwater fields in the Eastern Gulf is dependent on the offshore transportation systems and onshore infrastructure," said BP PLC spokeswoman Ayana McIntosh-Lee. She said options being considered include using barges and tankers and bypassing primarily third-party operated pipelines.
Chevron Corp.'s Empire Terminal on the Mississippi River, which suffered severe flooding, an oil spill and a power outage, is nowhere near coming up with a recovery estimate, spokesman Mickey Driver said.