Crude Surges Above $60 as U.S. Crude Inventories Fall

U.S. crude oil futures climbed more than 3% on Wednesday as the dollar slumped against major currencies and strong equities markets helped pull oil out of negative territory.

Since June's high of more than $70, oil prices have fallen to just above $60, maintaining this month's status quo.

In trading Wednesday, light sweet crude for August delivery rose 3.4% to $61.54 on the NYMEX, up $2.03 from Tuesday's close. Following the U.S. benchmark's gains, Brent crude on the ICE futures exchange traded more than $2 higher to settle above $63 per barrel.

Also contributing to a higher price per barrel of crude oil, the dollar weakened against the euro today.

Crude's rally follows on the heels of data released by the U.S. Energy Information Administration showing crude stocks fell by 2.8 million barrels in the week to July 10. Additionally, the American Petroleum Institute released a report yesterday indicating that crude oil supplies declined 1.2 million barrels last week.

'Buying Enthusiasm'

Darin Newsom, senior analyst with DTN, a market information service in Omaha, Nebraska, believes that the number one factor contributing to today's crude price rally is the spillover from the Dow, up 3.1%, which led to "buying enthusiasm" in today's market.

Companies such as Intel and the Goldman Sachs Group, heavyweights in two primary market sectors, reported strong earnings on Tuesday and Wednesday, respectively, encouraging investors to return to riskier markets.

Although the oil price settled above $60 in response to Wednesday's optimism in the marketplace, Newsom expects the crude rally "will run its course quickly," with prices coming under the pressure of a still fundamentally bearish market later this week.

"In the short-term, the economy -- and therefore oil demand -- is still ailing, which will likely make Wednesday's gains temporary," Newsom said. "It's a pause," he added. "I think [prices] are still headed lower."

Waiting on Rise in Fuel Demand

Underscoring weakened U.S. oil demand, data released today by the EIA shows a build in stocks that is no surprise to analysts.

According to the EIA, gasoline supplies grew by 1.5 million barrels last week to 214.6 million barrels, as an increase in fuel consumption, which is expected to rise during the summer driving season, has failed to emerge.

The EIA's data confirms that a lackluster demand for fuel amid the economic downturn has bumped up stockpiles of refined products, with distillate stocks topping out at a 25-year high last week. 

"We should be focusing on gasoline, and gasoline inventories increased going into the 4th of July holiday," Phil Flynn, vice president of research and senior analyst for PFGBest in Chicago, told Reuters.

Flynn continued, "Obviously that raises questions about the demand side of the equation, [and] evidence seems to be suggesting that it was not very good."

"There's no demand number you can point to," said Morgan Downey, a commodities trader at Standard Chartered PLC in New York, "it's just that [distillate] inventories didn't build as much as expected."

Today's rise in U.S. oil prices breaks a three-day, below-$60 streak, as well as a recent drop by more than 10% for the energy commodity.