NEW YORK (AP) Oil prices bounced nearly $2 to $44 a barrel Wednesday after government and industry data showed a sharp drop last week in the nation's supply a surprise to most traders, who expected inventories to be steady or grow slightly.
Analysts had been expecting for several days, however, to see some kind of a correction in oil markets, where prices had retreated by nearly $7 from the peak settlement of $48.70 reached Aug. 19.
The catalyst arrived Wednesday when the Energy Department reported that commercial inventories of crude fell by 4.2 million barrels to 287.1 million barrels last week. Imports declined, while refineries were very busy.
The American Petroleum Institute, a Washington-based trade group, said available supplies shrank by 8.1 million barrels.
''That was probably the main fundamental reason we rallied,'' said Tom Bentz, a trader at BNP Paribas Futures in New York.
Another reason, Bentz said, was the return of some speculation by institutional investors, including hedge funds.
That said, ''I still think we are going to roll over, go lower, from these levels,'' he added. ''But the market was a little jittery coming up on a three-day weekend'' for the Labor Day holiday.
Light crude for October delivery soared $1.88 to $44 per barrel on the New York Mercantile Exchange. Brent crude for October delivery gained $1.86 to $41.47 on London's International Petroleum Exchange.
''If we hold this level for a while, it means we will probably make another run at $50,'' said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Flynn said he does not expect that to happen in the near term. Rather, it would take a combination of factors, including a major supply disruption and a cold winter that would drive up demand for home-heating oil.
When prices shot up in mid-August toward $50, they went ''too high, too fast,'' Flynn said.
What's happening now, he added, is that ''a little base'' is being built in the low- to mid-$40 range.
The main problem right now is that there is only a thin margin perhaps 1 percent of spare output capacity worldwide, giving extra importance to even the slightest threat of a supply disruption. That is why daily events in Iraq, Russia and other major oil producers have kept markets on edge.
''While high crude oil and product prices may have some dampening effect on global oil demand, it still is expected to show significant growth this year,'' the Energy Information Administration, the Energy Department's statistical arm, noted in its weekly commentary on oil markets.
The agency added: ''Any industry, in which production is running at 99 percent of capacity to meet demand, is likely to experience price pressure, and there is no reason to expect that crude oil markets would not reflect these same fundamental economic forces.''
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