Oil prices rose almost $2 a barrel on Wednesday after US data showed crude and heating oil stockpiles fell more than expected in the wake of Hurricane Katrina. US light crude settled at $65.09, up $1.98 per barrel. London Brent crude rose $1.76 to $63.37 a barrel.
Data for the week to September 9 from the US Energy Information Administration (EIA) showed crude stocks drained by 6.6 million barrels and distillate supplies for winter heating and diesel fell 1.1 million barrels.
Analysts polled by Reuters had forecast a 1.4-million-barrel fall in crude stocks and a 0.2-million-barrel drop in distillates.
"I''m surprised by the drop in crude stocks and the further decline in crude oil imports," said Tim Evans, oil analyst at IFR Energy Services in New York.
"I was looking for a rebound in imports as some of the activity along the Gulf Coast came back to normal."
But dealers said the data also revealed a decline in US gasoline demand that might portend a scaling back by US drivers at the pump after the August 29 hurricane pushed US retail gasoline to $3 a gallon.
"Gasoline consumption fell. That suggests one of two things. First is the economy in worse shape than we thought or the high oil prices are starting to be affected by demand destruction," said Bill O''Grady, director of futures research at A.G. Edwards in St. Louis.
Evidence of waning global fuel demand growth has helped drag crude down from its $70.85 record a fortnight ago.
"The demand side of the oil equation is weakening, with the US standing as the last bastion of growth," said a report by Credit Suisse First Boston.
Traders are calculating the impact of the likely closure for months of at least three US Gulf refineries after Katrina against the emergency release of oil by the International Energy Agency.
The US Environmental Protection Agency continued its relaxation of some clean air requirements, hoping to lessen the chance of fuel shortages after Hurricane Katrina. The EPA on Wednesday said gasoline that evaporates faster than normal can be sold in California through October 31, in eastern Texas through October 1 and in Phoenix, Arizona through September 30.
Recovery of crude production in the Gulf of Mexico remains sluggish. The US said 56 percent of crude production remained shut. On Thursday the IEA meets in Paris to review its 60 million barrel release of emergency reserves of crude and petroleum products, initiated on September 9 to ease US shortages.
Washington sold only 11 million of the 30 million barrels of emergency crude it offered, half the total IEA release, because offline refiners are unable to process the oil.
Only 200,000 barrels of the US sale, from 15 million offered, were of the sort of high-sulphur sour crude that Opec mostly pumps.
Next Tuesday the Organisation of the Petroleum Exporting Countries meets to consider a production increase.
Opec President Sheikh Ahmad al-Fahd al-Sabah on Wednesday told a Reuters reporter he still plans to suggest at 500,000-bpd increase in the group''s output.
Only Saudi Arabia has spare production capacity and refiners have said they do not want more of the kingdom''s sour crude.