Oil vaulted more than a dollar a barrel on Wednesday after a US government report showed gasoline stockpiles remaining well below normal at the start of the summer driving season. Gasoline stocks, which were expected to rise last week, were unchanged as refinery use fell by 0.4 percentage points and imports dropped off sharply.
"The market was set up for a bearish report and this surprised everyone, especially the refining number," said Mike Fitzpatrick, vice president, energy risk management, at Man Financial in New York. Brent crude, now more representative of the global market, settled up $1.15 to $69.94 a barrel, reversing an earlier drop. US crude rose 91 cents to $66.26.
Concern about gasoline supply had been easing because of rising inventories. The latest EIA was expected to show stocks increased for a sixth week, building up supplies in time for peak summer demand.
"With the heart of the driving season upon us, the market's wall of worry in regards to gas supplies will begin to build again unless utilisation ramps up rather quickly," said Christopher Jarvis, analyst at Caprock Risk Management.
The International Energy Agency, which advises 26 industrialised countries, raised its 2007 world oil demand forecast on Tuesday, putting more pressure on Opec to relax supply curbs.
The Organisation of the Petroleum Exporting Countries, source of more than a third of the world's oil, agreed last year to lower output by 1.7 million barrels a day, helping to lift oil from around $50 in January. But prices reacted only briefly to the IEA report's bullish view on demand and supply.
"The IEA report and tone has become too predictable," said Olivier Jakob of oil consultancy Petromatrix. "For Opec the supply situation is always under control and for the IEA we are always facing an acute shortage. The truth is somewhere in the middle."
Wobbles in world equity and bond markets this week, on fears of interest rate rises to curb inflationary pressures, remained a potentially bearish influence on oil prices. Higher interest rates could cool economic growth and dampen oil demand.
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