Oil rallied $5 to a record near $105 a barrel on Wednesday after Opec decided to maintain output levels and government data showed a sharp draw in US crude inventories. US crude futures settled up $5.00 at $104.52 a barrel, before extending gains to an all time high of $104.95 a barrel in late trade.
London Brent crude surged $4.21 to trade at $101.73 a barrel late Wednesday. The gains came after weekly data from the US Energy Information Administration showed US crude inventories fell by 3.1 million barrels last week. The draw countered analyst forecasts for a build and heightened supply concerns already stirred by Opec earlier in the day.
"Traders were quick to re-establish long positions in the market today after Opec kept production steady and, more importantly, the crude data showed an unexpected counter-seasonal draw," said Eric Wittenauer, analyst at AG Edwards in St. Louis.
Opec members meeting in Vienna decided to hold production levels flat, insisting oil markets are well supplied and blaming record prices on factors outside the cartel's control, including speculators and the "mismanagement" of the US economy.
"What's happening in the oil market is due to the mismanagement of the US economy, which is probably affecting the rest of the world," said Opec President Chakib Khelil.
US Energy Secretary Sam Bodman said low oil inventories were to the main culprit behind high oil prices. A day earlier, US President George W. Bush criticised the producer group for its handling of the market. "I think it's a mistake to have your biggest customer's economy to slow down ... as a result of high energy prices," Bush said. Speculators have piled into oil and other commodities as a hedge against the weaker dollar and inflation as the US economy slows due to the credit crunch, the mortgage crisis and high energy costs.
Further support for oil prices came from escalating tensions in South America. Opec member Venezuela deployed tanks and its air and sea forces toward the Colombian border in its first major military mobilisation in a crisis with Colombia, Venezuela's defence minister said on Wednesday.
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