Oil Prices Jump on Rumor of Saudi Cuts

By Mark Williams

Columbus, Ohio -- Oil prices rose in volatile trading Wednesday after rumors spread that Saudi Arabia told major customers of significant production cuts.

Prices quickly had given up strong early gains after the government reported U.S. gasoline inventories were well above expectations, suggesting that American motorists continue to drive less.

Around midday, however, prices spiked close to 10%, the same time the Saudi rumor began to float, said Phil Flynn, an analyst with Alaron Trading Corp.

Light sweet crude for January delivery rose 3.4%, or $1.45, to settle at $43.52 on the New York Mercantile Exchange.

Investors tend to exit the market as the year closes out, creating very volatile trading. That appeared to be the case on Wednesday as well, with huge price swings.

A number of traders dismissed the Saudi rumor. Oil trader and analyst Stephen Schork credited the gains to an oversold market.

After hitting $40.50 a barrel last week, some oil traders believe that if the market has not bottomed out, it is close to doing so.

Still, there were signs that the American consumer continues to pull back on gas purchases.

Oil traders focused on gasoline inventories and also on refineries, which are rebounding from a violent hurricane season.

Gasoline inventories jumped by 3.8 million barrels. Analysts expected stockpiles of the motor fuel to rise by only 1.4 million barrels.

At the same time, U.S. refineries ran at 87.4% of total capacity on average, an increase of 3.1%.