Slippery day for oil: Hits trading record
Price settles above $87 a barrel in session that saw price soar to $89 on news that Turkey had OK'd military action in Iraq.
NEW YORK (CNNMoney.com) -- Oil futures settled above $87 a barrel Wednesday after a volatile day of trading. Prices at one point retreated after a government report showed a surprising rise in inventories, and then hit an intraday record high on news that Turkey had authorized military action in Iraq.
The settlement price for light sweet crude was $87.40 a barrel, down $0.22 from Tuesday's record-high settlement of 87.61 a barrel. Prices rose as high as $89.00 before retreating, eclipsing Tuesday's record trading high of $88.20. On Tuesday, oil prices closed at an all-time high of $87.61.
Just after the Energy Department's Energy Information Administration inventory report earlier in the session, oil prices fell as low as $87.09 but rebounded quickly.
Despite the increase in inventories, tensions between Turkey and Kurdish separatists in northern Iraq continued to support higher crude prices.
The Turkish parliament voted 507 to 19 on Wednesday to authorize its military to stage an incursion into Iraq to take on Kurdish rebels.
Conflict along the Turkey-Iraq border could disrupt oil supplies coming out of the region and drive crude prices even higher, according to Phil Flynn, senior market analyst at Alaron Trading in Chicago.
Meanwhile, an explosion at a small Exxon Mobil Corp. (Charts, Fortune 500) refinery in Montana exacerbated concerns about the adequacy of fuel supplies.
There were no immediate details about damage from the early morning explosion at Exxon Mobil's Billings refinery, or its effect on production. The plant can process 60,000 barrels of oil per day. That's a small amount, but news of the explosion lifted oil prices.
Despite the recent gains in crude prices, when adjusted for inflation, oil is still slightly cheaper than the $95 a barrel or so it would have been in the early 1980s.
In its weekly inventory report, the EIA said crude supplies rose by 1.8 million barrels during the week ended Oct. 12. Analysts surveyed by Dow Jones Newswires, on average, had predicted that inventories increased last week by 1 million barrels.
Refinery activity fell last week by 0.5 percentage point to 87.3 percent of capacity. Analysts had expected refinery utilization to grow by 0.4 percentage point.
Gasoline inventories increased by 2.8 million barrels last week, while supplies of distillates, which include heating oil and diesel fuel, rose by 1 million barrels. Analysts had expected gasoline inventories to grow by 1 million barrels, and distillate supplies to fall by 400,000 barrels.
"Even though the inventories were bearish, if you look at the big picture inventories are still not where we would want to see them," Flynn said. "In every major category the supplies are below where they were a year ago, which has raised some concerns."
At the pump, prices rose about 2 cents overnight to a national average of $2.78 a gallon for regular-grade gasoline, according to AAA and the Oil Price Information Service.
"Gas prices at the pump rose significantly in the last three weeks," said oil analyst Fadel Gheit of Oppenheimer.
However, Gheit said he believes that the oil markets have been taken over by speculators and oil prices are inflated by unrealistic fear about supply disruptions.
Historically, crises in the Middle East have been preceded by a run up in oil prices, which then declined sharply, according to Gheit. It is "buy on rumors, sell on news," he said.