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World oil prices surge after surprise drop in US reserves

NEW YORK -- World oil prices shot higher on Wednesday as traders weighed surprisingly steep declines in US energy stockpiles and the potential of weaker global demand amid financial turbulence.

New York's main futures contract, light sweet crude for delivery in October, soared $1.78 to close at $73.51 per barrel.

In London, the price of Brent North Sea crude for October delivery leaped $1.58 to settle at $72.13 per barrel.

The US Department of Energy (DoE) said American crude oil inventories plunged 3.5 million barrels in the week ended Aug. 24.

That was nearly six times more than analysts' consensus forecast of a 600,000-barrel drop.

The DoE also said added that US gasoline inventories dived by 3.6 million barrels, sharper than the forecast 2.5 million barrels.

Motor fuel inventories remain far below normal levels as refiners in the United States have struggled to keep up during the peak demand of the holiday driving season, which began in May and wraps up this weekend with the Labor Day holiday.

"With gasoline inventories standing at very low levels, refinery outages plaguing the market and demand running at an all-time high, further gains are likely," warned Barclays Capital analysts.

The dismal report drove crude prices higher a day after they had sunk, reflecting large tumbles on world stock markets stoked by concerns over oil demand, traders said.

"Participants refocused on supplies issues rather than on macroeconomics problems," said Michael Fitzpatrick, an analyst at MF Global.

Traders' worries about demand in the United States, the world's biggest energy consumer, resurfaced Tuesday after a monthly survey showed US consumer confidence -- a key gauge of economic well-being -- fell amid a deepening housing market crisis.

Market worries were further compounded after US Federal Reserve policymakers agreed the housing sector would remain a drag on overall economic growth for some time, dealers said.

The International Energy Agency (IEA) said that despite the recent financial turbulence, oil demand is likely to remain strong and the Organization of the Petroleum Exporting Countries cartel should increase output, according to a report Wednesday in the British newspaper Financial Times.

The IEA's deputy executive director, William Ramsay, was quoted as saying prices in the $70 range were "too high."

IEA head Claude Mandil told the specialist Arab Oil and Gas review, meanwhile, that "more crude oil is needed, therefore, but unfortunately the signals being sent out by OPEC do not leave us much hope in that regard."

OPEC meets on Sept. 11 in Vienna but dealers do not expect the cartel, which supplies roughly 40 percent of global demand, to adjust its output ceiling.