An unexpected drop in U.S. crude supplies boosted oil prices Wednesday, and more government stimulus spending could help push oil even higher this year.
Benchmark West Texas Intermediate crude for August delivery rose 62 cents to settle at $98.05 per barrel on the New York Mercantile Exchange. WTI got as high as $99.21 before easing back. Brent crude, which is used to price many foreign oil varieties, gained 91 cents to settle at $117.85 per barrel on the ICE Futures exchange in London.
Retail gasoline prices rose a penny on Wednesday to a national average of $3.645 per gallon.
Oil jumped after the Energy Information Administration said that the nation's crude supplies fell by 3.1 million barrels last week, a million barrels more than the decline that analysts forecast in a survey by Platts, the energy-information arm of McGraw Hill Cos. The drop was due in large part to lower imports of foreign oil. The EIA also said that oil and gasoline demand fell.
The price of oil got an extra boost from Federal Reserve Chairman Ben Bernanke, who said Wednesday that the central bank is looking for ways to reinvigorate the sluggish American economy. Bernanke said in his semi-annual report to Congress that the Fed is considering a few options, including another round of Treasury bond buying.
While that would drive down long-term interest rates, it also could weaken the dollar and drive up energy costs. Oil, which is priced in dollars, tends to rise as the dollar falls and makes crude cheaper for investors holding foreign money. If oil keeps rising, so will gasoline, diesel, jet fuel and other petroleum products. The dollar fell Wednesday morning after Bernanke's remarks.
The Fed's policies affected oil prices last year as it considered stimulus measures. In the three months leading up to the start of a $600 billion bond-buying program in November, oil climbed nearly 20 percent and the dollar tumbled against other major currencies. Oil continued to rise from about $80 a barrel in November to a three-year high near $114 in May.
Oil traders saw Bernanke's comments on Wednesday as just "just another message that the economy is in trouble, the dollar is headed lower and investors are going to look for hard assets" like oil, analyst Stephen Schork said.
Michael Lynch, president of Strategic Energy & Economic Research, said it's still possible that oil and gasoline prices could cool off this year, especially if the uprising in Libya ends and its oil starts flowing to world markets again. Lynch said it's possible that Libya could begin exporting as much as 1 million barrels of oil per day this year. That would cut $10 to $15 off the price of a barrel of oil, he said.
Meanwhile, China said its economy grew in the second quarter by 9.5 percent, which is the upper end of analysts' forecasts. China is the world's second largest oil consumer behind the U.S. and is expected to drive world oil demand this year to the highest level ever.
The International Energy Agency increased its estimates for world oil demand on Wednesday. The IEA raised its 2011 outlook by 250,000 barrels per day to a record 89.5 million barrels per day. That follows similar outlooks for strong global demand from OPEC and the EIA on Tuesday.
Average gas pump prices in the U.S. rose a penny on Wednesday to $3.645 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is 5.8 cents cheaper than a month ago but 93.2 cents more expensive than the same time last year.
In other Nymex trading for August contracts, heating oil added 1.21 cents to settle at $3.0997 per gallon and gasoline futures gained 5.34 cents to settle at $3.1516 per gallon. Natural gas rose 7.5 cents to settle at $4.387 per 1,000 cubic feet.
Chris Kahn can be reached at www.twitter.com/ChrisKahnAP.