Oil holds above $71 on inventory drop

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NEW YORK (CNNMoney.com) -- Oil settled above $71 Wednesday despite a weekly government report that showed crude inventories fell sharply from the previous week.

Crude for October delivery rose 63 cents to $71.94. In its weekly inventory report, the Energy Information Administration said crude stocks dropped by 5.9 million barrels in the week ended Sept. 4.

Analysts had expected a decrease of 1.8 billion barrels, according to a consensus estimate collected by Platts, an energy information provider.

Gasoline stockpiles increased by 2.1 million barrels, according to the report. Analysts had anticipated a 1.5 million barrel decrease.

The government report also showed that distillates, used to make heating oil and diesel, increased by 2 million barrels, above analysts' expectations of a 1.1 million barrel increase.

The twofold jump is significant, according to John Kilduff, energy analyst at MF Global. "If we're taking signals from the economy, we're not seeing a rebound here in terms of a diesel fuel demand," he said. Low demands for diesel, used mainly by delivery trucks and jet fuels, suggest a decline in nationwide shipping.

Despite Thursday's bearish report "crude is impressively bucking the trend," Kilduff said.

Crude prices were also crutched by a weak dollar, which has continued to drop against its trading partners. Crude oil, like other commodities, is priced in dollars and a weaker greenback can help support prices.

A separate report that said global oil demand will be slightly stronger than previously stated.

The International Energy Agency estimates oil demand will rise almost 1.3 million barrels per day, or 1.5%, next year. In 2009, however, global oil consumption will average 84.4 million barrels per day, down 2.2% from 2008.

Gasoline prices. The national average price for a gallon of regular unleaded gas increased to $2.576, up three tenths of a cent from the previous day's $2.573, according to motorist group AAA. This ended an eight-day decline.