Crude-oil futures rallied 2% after the Energy Department reported that crude supplies dropped by a much higher-than-expected 5.3 million barrels in the latest week.
Crude oil for December delivery surged $1.30, or 1.5%, at $86.57 a barrel on the New York Mercantile Exchange.
Crude supplies dropped by 5.3 million barrels to 316.6 million barrels in the week ending Oct. 19, the Energy Department reported Wednesday. Crude supplies fell by 200,000 barrels in Cushing, Okla., the physical delivery point for the West Texas Intermediate futures contract traded on Nymex.
"Crude oil prices have fallen after breaching the $90 mark late last week mainly because speculative buying has abated," said Chris Lafakis, an analyst at Moody's Economy.com, in a research note after the release of the inventory data.
'Today's report should exert upward pressure on prices, however, on fear that oil supplies will fail to meet demand during the winter heating season.'
— Chris Lafakis, Moody's Economy.com,
Among the factors weighing on crude prices have been talk of OPEC hiking production by an additional 0.5 million barrels per day, Japanese crude-oil imports falling 9.8% on the year because of weak demand, and U.S. gasoline demand remaining exceptionally weak, Lafakis said.
"Today's report should exert upward pressure on prices, however, on fear that oil supplies will fail to meet demand during the winter heating season," Lafakis said.
Gasoline stocks fell by 2 million barrels to 193.8 million barrels and distillate stocks declined by 1.8 million barrels to 134.5 million barrels, the Energy Department said. Refinery activity declined from 87.3% to 87.1%.
Crude imports fall sharply
Crude-oil imports fell by 1.3 million barrels per day to an average of 9.1 million barrels per day in the latest week, the Energy Department said.
"One of the big concerns for the oil market is that energy demand might drop off dramatically," said Phil Flynn, an analyst at Alaron Trading. "The drop in imports seems to suggest that demand worldwide is still strong."
"That's [the inventory report] the main driver for the market," Flynn said. "The stock market is under a lot of duress right now. We might have been up a lot higher if it weren't for that."
On Wall Street, U.S. stocks fell sharply, with the Dow Jones Industrial Average (DJIADJIA
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DJIA) declining nearly 170 points. See Market Snapshot.
In a separate report, American Petroleum Institute said Wednesday that crude supplies fell by 6.3 million barrels to 314.2 million barrels in latest week. Distillate stocks declined by 1.1 million barrels to 133.1 million barrels and gasoline stocks fell by 1.5 million barrels to 196.8 million barrels, API reported.
Also on Nymex, other energy futures also rallied. November reformulated gasoline surged 3.87 cents at $2.1476 a gallon. November heating oil rallied 4.49 cents at $2.3433 a gallon.
November natural gas rose 20 cents, or 3%, at $6.96 per million British thermal units.
On the global front, Turkish political and military leaders have gathered to discuss a possible attack against Kurdish rebels in northern Iraq, the BBC reported Wednesday. At the same time, Turkish artillery shelled PKK, or Kurdistan Workers' Party, positions across the Iraqi border, the BBC reported.
Elsewhere on the commodity markets, gold futures edged lower, as the market looked for direction against a backdrop of mixed trading in the dollar. See Metals Stocks.
