Oil ends volatile day below $96

Special Reportfull coverage

America's cheapest gas is in this town Summer drivers to get a break on gas Why gas prices are likely to keep climbing You'll pay a little less for gas this summer Expect relief from record February gas prices Why gas prices are rising

NEW YORK (CNNMoney.com) -- Oil prices see-sawed Wednesday after the government reported a big decline in crude supplies, the eighth drop in a row.

U.S. light crude for February delivery fell 66 cents to settle at $95.67 a barrel on the New York Mercantile Exchange. Oil had traded down 57 cents just prior to the report's release, but rose nearly $1 following the report.

In its weekly inventory report, the Energy Information Administration said crude stocks fell by 6.8 million barrels last week. Analysts were looking for a drop of 800,000 barrels, according to a Dow Jones poll. It's the eighth-consecutive week crude supplies have fallen.

"That's what goosed the market to the upside," said Anthony Grisanti, president of the commodities brokerage GRZ Energy.

But gasoline supplies jumped by 5.3 million barrels, a much bigger increase than the 1.6 million barrel gain expected. EIA said gasoline supplies are now above normal for this time of year.

Refineries operated at 91.3 percent of capacity, nearly 2 percentage points higher than last week and more than analysts expected.

Distillates, used to make heating oil and diesel fuel, rose by 1.5 million barrels. Analysts were looking for a 300,000 barrel decline.

Grisanti said it's the first time in a long time that gasoline stocks have been above normal. That, combined with the slowing economy, could send crude prices even lower.

"I think it hits $90 before it hits $100," said Grisanti.

Reports of more attacks on Nigerian oil facilities and an EIA report raising global consumption forecasts were also helped send prices higher Wednesday, the Associated Press reported.

Oil broke the $100-a-barrel mark last week, hitting a trading high of $100.09 on Jan. 3, but has since slipped amid fears of a slowing economy.

Oil prices have risen nearly five-fold from under $20 a barrel in early 2002.

Most analysts blame the spike on surging demand - mostly from developing countries and the United States - and limited new supplies.

This tight supply and demand scenario has attracted lots of investment money, further pushing up prices. It also magnifies the effect of geopolitical tensions, as there is less spare capacity to make up for a supply disruption.

The falling dollar has also played a part, as investors bail out of U.S. stocks and bonds and go into commodities like oil or gold as a hedge against the lower dollar.

Gold prices also rose Wednesday to $880 an ounce, their highest level ever, not adjusting for inflation.