Oil futures rose above $97 a barrel Thursday after the government reported larger-than-expected declines in crude and heating oil inventories.
In its weekly inventory report, the Energy Department's Energy Information Administration said oil inventories fell by 3.3 million barrels last week, more than double the 1.3 million barrel decline analysts expected. Inventories of distillates, which include heating oil and diesel fuel, fell by 2.8 million barrels, much more than the expected drop of 800,000 barrels.
"(Heating oil) stocks are just plunging right now," said Stephen Schork, a trader and analyst in Villanova, Pa.
Crude and heating oil stockpiles have declined more than expected for several weeks running, exacerbating a perception that supplies may be inadequate to meet winter demand.
Light, sweet crude for February delivery rose $1.61 to $97.58 a barrel on the New York Mercantile Exchange after rising as high as $97.79. Heating oil futures for January delivery rose 5.67 cents to $2.6979 a gallon.
Oil prices also rose on news of the assassination of Pakistani opposition leader Benazir Bhutto, which raised concerns about geopolitical stability. Pakistani opposition leader Nawaz Sharif later said his party will boycott parliamentary elections next month, and demanded that President Pervez Musharraf resign immediately.
That news came on the heels of attacks by Turkish forces on Kurdish rebels in northern Iraq earlier in the week, which boosted oil prices by raising concerns about Iraqi oil exports.
"I think the market got about as much bullish news as it can over the last couple days," said James Cordier, president of Liberty Trading Group in Tampa, Florida.
Other aspects of Wednesday's EIA report were also supporting prices. Supplies of gasoline rose last week by 700,000 barrels, about half the 1.4 million barrel increase analysts surveyed by Dow Jones Newswires had expected. January gasoline rose 4.95 cents to $2.5021 a gallon on the Nymex.
Refinery activity rose by 0.3 percentage point last week to 88.1 percent of capacity. Analysts had expected an increase of 0.6 percentage point.
"This is just a market that still has a huge question mark with regards to ... refining capacity," Schork said.
Crude stocks at the closely watched Nymex delivery terminal in Cushing, Oklahoma, rose by 100,000 barrels last week. Falling supplies in Cushing are seen as a symptom of a tight market, and those concerns ease when Cushing inventories rise. But while Cushing inventories have risen for several weeks, last week's increase was insignificant, Cordier said.
Last week's drop in crude supplies came despite an unexpected jump in imports, which rose by an average of 694,000 barrels a day to 9.8 million barrels a day. Gasoline imports dipped last week by 93,000 barrels a day to an average of 1 million barrels a day.
Gasoline demand rose last week by 159,000 barrels, and was up 0.3 percent over the last four weeks compared to the same period last year, the EIA said.
December natural gas fell 11.8 cents to $6.928 per 1,000 cubic feet on the Nymex.
In London, December Brent crude rose $1.75 to $95.69 a barrel on the ICE Futures exchange.
With oil prices back on the rise, new records aren't out of sight.
"I think this is really setting the table for a really strong gasoline rally in the spring," Schork said.