Oil tops $72 on inventory drop

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NEW YORK (CNNMoney.com) -- Oil prices rose for the second session straight Wednesday after a government report showed crude inventories fell more than expected, and the dollar continued to weaken.

Crude for October delivery rose 2.23%, or $1.58, and settled at $72.51 a barrel, the highest since Aug. 28.

A softer dollar has been giving crude prices a boost lately. The greenback hit a seven-month low against the yen and a nine-month low against the euro on Wednesday. Oil, like other commodities, is priced in dollars and a weaker greenback typically supports prices.

"The only reason prices are rallying today is again because of the weakness of the dollar and the strength of the stock market," said James Cordier, president of Liberty Trading Group, adding that inflationary fears could push crude prices higher in upcoming sessions.

Stocks rose Wednesday, building on Tuesday's gains, when the three major indexes hit new 2009 highs. The markets have now gained for seven out of the last eight sessions, as investors become more confident that a recovery is underway.

"The market continues to push investors to buy crude oil with the idea that the economy is about to improve," Cordier said. "All eyes will be on the stock market to see if it will continue climbing, and oil will tag along."

Crude jumped more than 3% Tuesday to $70.93 a barrel, helped by a 2.7% increase in U.S. August retail sales and data showing rising producer prices. Fed chief Ben Bernanke also added to the enthusiasm, with his comments that the recession is "very likely over" but he also cautioned that the road will remain tough.

That type of caution could keep oil prices mired in a fairly tight range in the near term. Cordier said the oil market is entering into the softest demand season and he expects crude prices to drop to between $60 and $65 a barrel by the end of the year.

"The stock market may continue to rally but the main street economy hasn't improved as much and that's what will bring prices down later this year," Cordier said.

Inventory report. The Energy Information Administration said crude stocks dropped 4.7 million barrels in the week ended Sept. 11.

Analysts had expected a decrease of 3 million barrels, according to a consensus estimate collected by energy information provider Platts.

Gasoline stockpiles increased by 500,000 barrels, according to the EIA report. Analysts had forecasted an increase of one million barrels.

The government report also showed that distillates, used to make heating oil and diesel, rose by 2.2 million barrels, topping analysts' expectations for a 1.2-million-barrel increase.

Gasoline prices. The national average price for a gallon of regular unleaded gas decreased to $2.556, down seven tenths of a cent from the previous day's $2.563, according to motorist group AAA.

This is the fifth consecutive day the price of gas has declined.