Oil rises on signs of better demand, weaker dollar

AP News
Posted: Aug 17, 2011 3:39 PM
Oil rises on signs of better demand, weaker dollar

Oil rose Wednesday as traders focused on an unexpectedly large drop in gasoline supplies and a weaker dollar.

Benchmark West Texas Intermediate crude for September delivery rose 93 cents to finish at $87.58 per barrel on the New York Mercantile Exchange. Brent crude, which is used to price many international oil varieties, increased by $1.47 to end the day at $110.60 per barrel on the ICE Futures exchange in London.

Oil rose early in the day on reports that the nation's gasoline supply dropped more than expected last week. The Energy Information Administration said gasoline supplies fell by 3.5 million barrels last week to 210.1 million barrels. Analysts expected a drop of 2.3 million barrels, according to Platts, the energy-information arm of McGraw Hill Cos.

PFGBest analyst Phil Flynn said the drop in gasoline supplies is a promising sign for the economy. "It suggests that demand for gasoline is improving a little bit," Flynn said.

Increasing demand for gasoline would suggest that refineries will also need more oil, which is used to make gasoline.

EIA said that crude supplies increased by 4.2 million barrels last week. When the amount of oil that was pumped out of the Strategic Petroleum Reserve last week is included, the country's overall oil supply actually dropped by 1.7 million barrels. The U.S. is contributing about half of the 60 million barrels that the International Energy Agency said it would release to help cover shortfalls of Libyan crude on international markets. Oil supplies from Libya are shut down because of unrest there.

Oil rose Wednesday as the dollar lost ground to major currencies in countries that have higher interest rates than the U.S. Oil, which is priced in dollars, tends to rise as a falling greenback makes crude cheaper for investors holding foreign money.

Meanwhile, gasoline prices slipped to a national average of $3.584 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular has dropped 40 cents since early May, when the national average peaked near $4 per gallon. However, pump prices are still about 84 cents higher than a year ago.

In other Nymex trading for September contracts, heating oil rose 2.9 cents to settle at $2.9616 per gallon and gasoline futures increased by 1.65 cents to settle at $2.8703 per gallon. Natural gas rose less than a penny to settle at $3.933 per 1,000 cubic feet.