Oil price rises as US supplies shrink

Oil price back above $97 as shrinking US supplies, rising diesel demand offset Europe concern

Associated Press

NEW YORK (AP) -- Oil prices climbed above $97 per barrel Wednesday on signs that the U.S. is consuming more fuel.

Benchmark crude rose 40 cents to $97.20 per barrel in New York, while Brent crude fell 66 cents to $114.34 per barrel in London.

The government said Wednesday that diesel demand is sharply higher compared to a year ago. However U.S. consumption of other petroleum products — especially gasoline — is still weak.

Analysts said the data shows that farmers, shipping companies and other major U.S. industries are burning more fuel — evidence that the economy is gradually building up steam. U.S. supplies of distillates, a category that includes diesel and fuel oil, fell by 4.2 percent to 135.9 million barrels last week as demand increased nearly 4 percent from a year ago, according to the Energy Information Administration.

Supplies are expected to shrink further as temperatures drop and home owners along the East Coast use more fuel oil for heat.

"We're sucking down distillates like crazy," PFGBest analyst Phil Flynn said. "All of that fuel is going to have to be replaced, so oil is going up."

Rising diesel demand in the U.S. overshadowed ongoing concerns about Europe's debt crisis and a warning from OPEC about weaker global oil consumption next year.

Oil prices were lower earlier in the day as Italy's key borrowing rate jumped, a sign that the country will continue to struggle with huge debt problems verging on default. Government defaults would be particularly devastating to the European economy since its debts are considered too big to bail out. If Europe falls back into recession as a result, demand for oil would drop.

The Organization of Petroleum Exporting Countries said Wednesday that it expects oil demand to sink in industrialized countries this year, especially in Europe.

At the pump, retail gasoline prices rose almost 2 cents cents to a national average of $3.43 per gallon, according to AAA, Wright Express and Oil Price Information Service.

In other energy trading, heating oil rose 2 cents to $3.1348 per gallon, and gasoline futures fell 2 cents to $2.815 per gallon. Natural gas fell 8 cents to $3.67 per 1,000 cubic feet.

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