Oil rallies above $71

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NEW YORK (CNNMoney.com) -- Oil prices rallied to their highest level since mid-October Wednesday after a weekly government inventory report said crude supplies sank sharply and unexpectedly.

In its weekly inventory report, the Energy Information Administration said crude stocks fell by 4.4 million barrels in the week ended June 5.

Analysts expected oil supplies to increase by 800,000 barrels, according to a consensus estimate of industry analysts surveyed by Platts, a global energy information provider.

Light, sweet crude for July delivery rose $1.32, or almost 1.9%, to settle at $71.33 a barrel Wednesday. Prices had risen $1.09 just prior to the report's release at 10:30 a.m. ET.

That's the highest settle price since Oct. 20, when oil ended at $74.25.

Investors were looking to the EIA report for confirmation of a separate Tuesday report from the American Petroleum Institute, which said U.S. crude stocks fell by 6 million barrels last week.

Despite the recession curtailing demand, crude prices have been rising. On Tuesday, oil gained more than 2.8% to end above $70 for the first time in seven months. Since the end of 2008, oil has doubled in price.

The EIA's short-term energy outlook, released Tuesday, forecast that crude will average $67 per barrel in the second half of 2009, up $16 from the first half.

Gasoline: Stockpiles of gasoline fell by 1.6 million barrels. Analysts predicted a 1.1-million-barrel increase.

The national average price for a gallon of regular unleaded gasoline increased to $2.627 from $2.622 the previous day, according to motorist group AAA. That's the 43rd consecutive day of increases.

The EIA predicted that gas prices will reach a monthly average of close to $2.70 in July, the middle of the summer driving season.

The EIA report also said distillates, which are used to make heating oil and diesel, fell by 300,000 barrels. Analysts expected an increase of 1.1 million barrels.