Oil surged to a record high over $112 a barrel on Wednesday after a government report showed a sharp drop in US inventories ahead of the summer driving season. US crude settled up $2.37 at $110.87 a barrel after peaking at $112.21 and eclipsing the previous record of $111.80 hit March 17.
London Brent settled $2.13 higher at $108.47 a barrel after hitting an all-time high of $109.50. US crude stockpiles fell 3.2 million barrels last week as imports declined, countering analyst expectations for a build, while gasoline and distillate inventories also tumbled, the US Energy Information Administration reported.
US gasoline and heating oil futures as well as London gas oil also hit record highs after concern about diesel supplies amid strong European and Asian demand supported crude earlier this week. "This is a perfect storm for the energy markets, with records hit all around," said Phil Flynn, analyst at Alaron Trading in Chicago. "But distillates are taking the centre stage here because of tightness of supply of diesel and with a cold winter and the recent refinery fire in Finland." he added.
Further strength came from weakness in the dollar, which fell against the euro and the yen on views the US Federal Reserve could cut interest rates by a 50 basis points this month amid worries of a possibly severe US economic downturn.
The weak dollar has helped boost prices for commodities denominated in the greenback by boosting non-US spending power and by luring investors seeking an inflation hedge. High oil prices and the weakening US economy have stirred demand worries in the world's largest energy consumer. The government on Tuesday forecast US summer driving use would fall for the first time since 1991. Despite calls from consuming nations for Opec to raise oil production to help tamp record prices, cartel members insist markets remain well supplied.
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