NEW YORK (CNN/Money) -
Oil prices gained nearly $2 Wednesday to touch another record high in today's dollars, recovering from an earlier decline after a government report said crude supplies had climbed more than expected.
U.S. light, sweet crude for September delivery surged $1.83 to settle at $64.90 a barrel, easing off a fresh record-trading high of $65.05 touched during afternoon trading.
Crude prices initially fell as low as $62.91 early in the session after the Energy Information Administration released its weekly supply report.
But traders quickly turned their attention back to geopolitics. Fadel Gheit, a senior energy analyst with Oppenheimer, said the rising tensions between Iran and the United States over the use of nuclear facilities is definitely one factor in Wednesday's spike in oil prices.
"The fear factor is definitely coming back to the floor here," said Gheit, referring to the concern over the possibility of the United States using force against the Middle East oil producer. "If that coincides with a hurricane, cold weather or a miscalculation on our part, then we are really up for much higher prices."
The weekly EIA report
Crude oil inventories rose by 2.8 million barrels in the week ended Aug. 5, according to the Energy Information Administration, as crude imports hit their second highest level in history.
Analysts surveyed by Briefing.com had forecast a 1 million barrel drop in crude supply. According to the report, U.S. crude oil inventories stand at 320.8 million barrels, well above the upper end of the average range for this time of year.
Labeling the report "bullish" for energy traders, Phil Flynn, a senior energy analyst with Alaron Trading, said an important part of the report was the nationwide distribution in the supply of crude.
"Even though the overall number looked good, a lot of the supply was on the West Coast," said Flynn, noting that the western U.S. supply typically does not alleviate oil demand across the rest of the country.
With a high percentage of crude coming from imports, Flynn said the market should react accordingly.
"It reminds us how reliant we are on imports, and with the geopolitical climate and tropical storms, we could not afford to be down for any extended period of time to meet demand," said Flynn.
Gasoline supply falls, distillates jump
Total motor gasoline inventories fell by 2.1 million barrels last week, putting them in the lower half of the average range. Analysts had predicted a fall of 2 million barrels
The report noted that the demand for gas had increased over the past year, climbing 1.4 percent. Over the last four weeks, motor gasoline demand has averaged nearly 9.5 million barrels per day.
Distillate fuel inventories increased by 2.6 million barrels last week, and are just above the upper end of the average range for this time of year. The consensus among analysts surveyed by Briefing.com was a rise of 1.75 million barrels.
The demand for distillates, which include diesel and heating oil, has averaged 4 million barrels per day over the last four weeks, or 4.4 percent above the same period last year
Crude prices climbed to record levels Tuesday following warnings of militant attacks in Saudi Arabia, the world's biggest oil exporter, and over worries about refinery outages in the United States.
A spate of unplanned shutdowns at several U.S. refineries and problems at suppliers in Venezuela have ignited fears that oil and fuel producers will not be able to keep up with demand.
Michael Darda, a chief economist at MKM Partners, noted that the recent jump in the price of crude is driven by these same fears.
"It looks to me the worst fears are being priced into crude oil," he said. "The longer prices stay this high, that will motivate investment and production."
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