Oil prices rise after big drop in US crude supplies

NEW YORK CITY – Oil prices Wednesday moved higher after the US inventory report showed a larger-than-expected drop in US crude stockpiles.

The US benchmark West Texas Intermediate crude for August delivery ended 48 cents higher at $106.48 per barrel.

In London, Brent oil for September delivery added 47 cents to $108.61.

The rise in prices came after the US Department of Energy said crude inventories last week fell by 6.9 million barrels, well above the 2.2 million barrels estimated by analysts in a Dow Jones Newswires survey.

It was the third straight week that US inventories dropped by a large amount.

However, analysts said the decline was offset by the gains in petroleum product stockpiles. The gains in product supplies kept oil prices from rising too much, they said.

Gasoline stocks rose by 3.1 million barrels, while home heating oil and other distillate fuel jumped by 3.9 million barrels.

The rise in gasoline supplies, as demand peaks for the summer holiday season, “makes the decline in crude oil inventories a little less critical,” said Tim Evans, an analyst at Citi Futures Perspective.

“Who needs crude oil if you have plenty of gasoline?”

Meanwhile, the oil market did not react strongly to congressional testimony by Federal Reserve Chairman Ben Bernanke. Bernanke said the Fed could taper its bond-buying program later this year, but only if the economy improves.

Michael Truscelli, a broker-trader at Paramount Options, characterized the Bernanke remarks as “pretty wishy-washy.”

“The markets have not really reacted either way to Bernanke,” Truscelli said.

Gene McGillian, a broker and analyst at Tradition Energy, said the dynamics that pushed oil prices above $105 in July are still in play. These include declining US crude supplies and concerns that the problems in Egypt will expand to other parts of the oil-rich Middle East.

“Until those things recede, I think the market’s going to remain pretty strong,” McGillian said. “The bulls are still in charge.”