Lower Crude Inventory Data Send Oil Prices Higher

The price of crude oil jumped above $30 per barrel Wednesday after data from an industry group late Tuesday suggested that the nation's stocks of crude dropped sharply for the second straight week.

In afternoon trading Wednesday, the price of the September crude oil contract at the New York Mercantile Exchange had risen 99 cents to $30.11 per barrel.

Analysts said that the rising price was mostly due to weekly data from the American Petroleum Institute, which showed a net reduction in U.S. oil stocks in the week ended Aug. 4. API reported that crude stocks were down 2.1 million barrels for the week, after plunging 9.0 million barrels the previous week.

"A lot of people had been expecting to see oil inventories rebound, or a revision of the previous week's data," said Matthew Warburton, an oil and gas analyst at UBS Warburg Dillon Read. "It came as a big surprise that instead the report showed a further draw in inventories."

However, Warburton believes that reported shortfall in oil production during the week, and Wednesday's sharp rise in crude prices will probably prove to be tempoarary.

"We expect to see inventories start building again very soon. We'll see OPEC production continue to grow this year, and we haven't yet seen the arrival of the incremental production that Saudi Arabia has committed to," Warburton said.

In fact, crude inventories might indeed have been on the rise in the latest week, despite the API's report. The Department of Energy released its own report Wednesday that showed oil stocks rose 1.3 million barrels in the latest week.

Though the private and government reports often differ from one another, some analysts had been looking to the DOE report to confirm API's reported drop. The prior week, DOE's reported that stocks declined by 10 million barrels, lending confirmation to the decline of 9 million barrel decline reported by the API.

"We'd tend to give more credence to the idea that stocks are actually building, given that worldwide production is rising, refinery run rates were lower for the week, and that the DOE provides a more comprehensive data set," Warburton said.

He noted, however, that market-watchers' surprise about the inventory decline suggested by API is the major influence on the market Wednesday.

"There had been a lot of profit-taking on Monday and Tuesday in anticipation of a rebound, so the lack of a rebound or a revision came to be very bullish for the market today," Warburton said.

The rally in oil prices helped to boost a bevy of oil-related equities Wednesday, despite overall weakness in the Dow Jones Industrial Average.

"The idea that inventories might be shrinking now, at a time when they are usually building up for the winter heating season, is spurring more confidence in oil companies' earning power as we go forward," said Charlie Ober, vice president and fund manager at T. Row Price.

In afternoon trading Wednesday, shares of ExxonMobil(XOM Quote) were up 53/64, or 1%, at 81 5/8; shares of Sunoco(SUN Quote) were up 7/16, or 2% at 26 3/8, and shares of Unocal(UCL Quote) were up 3/4, or 2% at 32 1/4.