The price of crude oil soared yesterday after government reports showed a decline in oil inventories.
U.S. crude for October delivery rose 4.5 percent, or $1.88, to close at $44 per barrel on the New York Mercantile Exchange. That reversed a downward trend since Aug. 19, when oil reached nearly $49 per barrel.
Prices have been high for months because of concerns about terrorism and political instability in oil-producing countries. Worldwide production is already near capacity while demand has been increasing -- especially in China and India.
John C. Felmy, chief economist for the American Petroleum Institute, an industry group, said the market remains volatile and is especially sensitive to supply issues. "They're looking for any evidence of a problem," Felmy said of traders. "It's continued nervousness."
Weekly data from the Department of Energy and the American Petroleum Institute showed a significant decrease in U.S. commercial crude oil inventories.
The Energy Information Administration, an arm of the Energy Department, reported a 1.4 percent decrease from the previous week, about 4.2 million barrels, for a total inventory of 287.1 million barrels. The American Petroleum Institute said the decrease from the previous week totaled 8.1 million barrels of oil.
"We were looking for pretty much an unchanged number," said George Gaspar, an energy analyst for Robert W. Baird & Co. in Milwaukee. "This was obviously a surprise."
Analysts said the decline in inventories could be attributed to refineries running near capacity and a drop in imports. The import decline, however, could be the result of tankers arriving later than expected.
Gaspar said the increase in price yesterday was "overdone" and that it is "not representative of what we're going to see in the short to intermediate term."
He said he expected prices to fall to the low $40 range. In six months or so, Gaspar said, he expects prices of $36 to $38.
Last month, the Federal Reserve blamed much of the country's recent slowdown in economic growth to higher oil prices.
At the same time, the price of gasoline at stations around the country has continued to edge down. The reason is that the inventory of gasoline has increased and demand has gone down.
According to a survey released by the AAA auto club, a gallon of regular gasoline was selling for an average of $1.857 yesterday, down slightly from the day before and from a month ago.