Oil settles above $77 -- first time in 2009

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NEW YORK (CNNMoney.com) -- Oil prices settled above $77 a barrel on Thursday -- a first for the year -- after a bullish government showed a surprise drop in gasoline stockpiles and a lower-than-expected rise in crude inventories.

Oil for November delivery rose $2.40, or 3.19%, and settled at $77.58 a barrel. The last time oil prices ended trading above $77 was in October 2008 when they settled at $78.63.

"Crude oil has been enjoying incredible momentum and piggybacking on the stock market for the last several weeks, especially with the Dow going over 10,000 yesterday," said James Cordier, president of Liberty Trading Group.

Though the government's inventory report showed a sharp drop in gasoline stockpiles and pushed oil prices higher, Cordier said the significance of the figure will dwindle because demand for gas naturally drops in the fourth quarter. He said it will not be a factor again until next spring.

"We're buying the rumor and selling the fact," Cordier said. "The market is extremely overbought and I expect a sell off coming today or tomorrow. Oil should ease back into the low $70-range later this week or next week."

Cordier added that crude prices generally go into a tailspin mid-October and current demand for oil doesn't justify prices above $70 a barrel.

And if stocks retreat from their highs, a drop is even more likely.

Crude prices were also boosted by a weak dollar. Crude oil, like other commodities, is priced in dollars, and a weaker greenback can help support prices.

Inventory report. The Energy Information Administration reported a modest increase in crude stocks of 400,000 barrels in the week ended Oct. 9. Analysts were expecting a rise of 2.2 million barrels, according to a consensus estimate collected by energy information provider Platts.

The government report showed a surprising and sharp decrease in gasoline stockpiles by 5.2 million barrels. Analysts expected an increase of 1.6 million barrels.

The government report also showed that distillates, used to make heating oil and diesel, decreased 1.1 million barrels, slightly above analysts' expectations of a one million-barrel decrease.

Gasoline prices. The national average price for a gallon of regular unleaded gas increased to $2.487, up six tenths of a cent from the previous day's $2.481, according to motorist group AAA.