Oil surged $3 to near $104 a barrel on Wednesday after a US government report showed a steep draw in US refined fuel inventories as the giant consumer gears up for the summer driving season. The gains snapped three days of losses as Iraq began to repair an oil pipeline in the south damaged by an attack last Thursday, and came even as US crude oil stocks posted their biggest weekly increase in four years.
US crude futures jumped $3.00 to $103.98 a barrel by 1752 GMT. London Brent crude rose $2.45 cents to $102.62 a barrel. Data from the US Energy Information Administration showed gasoline inventories tumbled 4.5 million barrels against analyst calls for a 2-million-barrel fall, while distillate stocks fell by 1.6 million barrels.
The declining inventories of refined fuels come in the run up to the summer vacation season, when US fuel demand typically peaks. US crude stocks, meanwhile, jumped 7.4 million barrels last week, the biggest build since March 2004, as imports rose and demand from domestic refiners remained low.
"The crude oil build certainly was unexpected and bearish for the complex. However, the sharper-than-expected gasoline draw should offer the products some support and help the margin environment for refiners," said Eric Wittenauer, analyst for Wachovia Securities.
Adding to oil's gains, the US dollar softened against the euro on Wednesday. A weak US dollar can support nominal prices for all commodities denominated in the currency. Concerns over the health of the struggling US economy have knocked crude off a record high over $111 a barrel hit last month, with analysts forecasting tepid oil demand from the world's top consumer this year.
US gasoline demand for the past four weeks held steady versus year-ago levels, according to the EIA, while overall product demand fell 1.3 percent compared with last year.
"The demand numbers for gasoline are pretty poor, but domestic production was down and that's why we're seeing a big (gasoline stock) draw," said Phil Flynn, analyst for Alaron Trading. Federal Reserve Chairman Ben Bernanke said on Wednesday the US economy could contract in the first half of the year but that growth should pick up as the impact of aggressive interest rates cuts is felt.
Optimism that the worst of the credit crisis could be over helped push up commodities and US stocks as investors looked for bargains after the recent string of massive write-downs.
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