Crude supplies fall and prices rise above $71

By MARK WILLIAMS (AP)

Oil prices rose Wednesday after the government reported a large drop in crude supplies.

Benchmark crude for October delivery climbed 46 cents to $71.39 a barrel on the New York Mercantile Exchange. On Tuesday, the contract rose $2.07 to settle at $70.93.

Natural gas prices continued their recent tear after hitting a seven-year low this month, rising another 7.8 percent Wednesday.

The Energy Information Administration reported a decrease of 4.7 million barrels of oil for the week ended Friday, a bigger decline than the 3 million barrel drop expected by analysts, according to a survey by Platts, the energy information arm of McGraw Hill Cos.

Still, there are abundant signs that the recession is still weighing on consumers and businesses for which travel has slowed to a craw.

Supplies of gasoline increased by 500,000 barrels and inventories of distillate fuels used for diesel fuel and heating oil rose by 2.2 million barrels.

While the government said demand for gasoline rose 3.5 percent over the past four weeks compared with a year ago, it was at this time in 2008 when hurricanes Gustav and Ike curtailed production in the Gulf of Mexico and sent gasoline prices skyrocketing in parts of the country.

The lack of demand for gasoline has given beleaguered consumers who are watching every dime something of a cushion this year.

Prices at the pump dipped again, falling 0.7 cents to $2.556 a gallon overnight, according to auto club AAA, Wright Express and Oil Price Information Service. Prices are 8.5 cents lower than a month ago and $1.298 below year ago prices.

Jet fuel demand is down 6 percent during the same period.

If it weren't for a very weak dollar, oil and gas prices might be even lower.

The dollar plumbed new depths Wednesday, as the euro rose to $1.4688 against the U.S. currency, from $1.4656.

Crude is priced in dollars so it becomes cheaper when the dollar falls. Some investors also use commodities such as oil and gold as a hedge against inflation and dollar weakness.

The spike in natural gas has left many energy experts skeptical because industrial demand is so low. Still, prices hit new seven year lows earlier this month on the eve of the winter heating season, much too far in the eyes of others.

Natural gas jumped 22.6 cents to $3.546 per 1,000 cubic feet Wednesday

In other Nymex trading, gasoline for October delivery rose less than a penny to $1.7967 a gallon, and heating oil fell less than a cent to $1.78 a gallon. Link...