Oil prices hold above $80

• By Hibah Yousuf, CNNMoney.com staff reporter
• On 3:18 pm EST, Wednesday November 4, 2009

Oil prices stayed above $80 a barrel Wednesday as a government report showed a surprise drop in crude inventory.

Crude held onto those gains after the Federal Reserve said it would hold a key interest rate near zero.

The Federal Reserve said it will hold its benchmark rate at historic lows near 0%, although "economic activity has continued to pick up."

Crude oil for December delivery rose 80 cents, or 1.01%, and settled at $80.40 a barrel.

That extended the previous day's almost 2% advance, as investors dug into riskier assets on the dollar's weakness.

"Today's report of a significant drop [in crude oil stocks] was a surprise, but the main catalyst pushing oil higher is the stronger stock market and weaker dollar," said James Cordier, president of Liberty Trading Group.

Stocks rallied in early trading following a high close in overseas markets and on data reporting the pace of layoffs is slowing.

Oil prices were also boosted by a softened dollar. The greenback retreated against higher-yielding currencies such as the euro and the pound as investors await the Federal Reserve's wrap-up of its two-day meeting to discuss monetary policy.

Crude oil, like other commodities, is priced in dollars, and a weaker greenback can help support prices.

The dollar has also pushed gold into record-high territory.

Without clear evidence of a sustainable recovery under way, Mike Fitzpatrick, vice president of energy at MF Global, says oil will not break through the year's high of $81.37 a barrel -- but it also won't drop below recent lows of $77 a barrel.

Traders will also look to October's nonfarm payroll report, due Friday, for clues about the strength of the economic recovery.

Inventory report. The Energy Information Administration reported a surprise decrease of 4 million barrels in crude stocks. Analysts expected a rise of 1.3 million barrels in crude stocks, according to a consensus estimate collected by energy information provider Platts.

The government report showed decreased of 300,000 million barrels in gasoline stockpiles against analysts' expectations for a rise of 800,000 barrels.

Distillates, used to make heating oil and diesel, decreased by a modest 400,000 barrels and missed expectations for a drop of 1 million barrels.

Gasoline prices. The national average price for a gallon of regular unleaded gas decreased to $2.682, down two tenths of a cent from the previous day's $2.686, according to motorist group AAA. This is the fifth consecutive decrease.

Buzz up!