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Reports of shrinking domestic inventories revived fears of a winter supply shortage, sending oil prices as high as $34 a barrel overnight before they eased back during the regular trading session.

Still, while crude oil for November delivery settled up just 7 cents at $33.25 a barrel on the

New York Mercantile Exchange

Wednesday, prices remain high. Oil has gained more than $2 a barrel since Monday on

concerns over rising Mideast tensions and winter fuel shortages.

Report of Supply Shortage


American Petroleum Institute's

weekly inventory report has only reinforced those concerns. The industry group reported late Tuesday that crude oil and distillate stocks had decreased by 3.9 million barrels and 3.3 million barrels respectively last week, while the refinery utilization rate slipped a half-percentage point to 93.9%.

The news surprised analysts, who had expected crude oil inventory levels to grow by as much as two million barrels last week, and distillate stocks, which include heating oil and diesel fuel, to increase by a half million to 1.5 million barrels. Gasoline stocks had been expected to show a slight gain, but the API data showed gasoline levels also fell, by about 900,000 barrels.

The report had a more profound effect on oil and gasoline futures contracts. The November contract for heating oil jumped 2.1 cents Wednesday, settling at $1.018 a gallon, while the November contract for unleaded gasoline gained about a penny to settled at 92.4 cents a gallon.

Those prices could fluctuate further on Thursday after the

Department of Energy

reports its petroleum inventory data for last week. The figures are typically reported on Wednesday but were delayed this week due to the Columbus Day holiday.

The unexpectedly large declines reported by the API for last week leave heating oil inventories 35% below last year's levels, and crude oil inventories 5.5%, or 16.5 million barrels, lower than they were a year ago. "We believe the potential for winter heating oil shortages (particularly in the Northeast) is growing," concluded S. Magnus Fyhr, an analyst at

Jefferies & Company

, in a research note Wednesday.

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The implied demand for heating oil last week climbed to 4.297 million barrels per day, the highest level since the 4.58 million barrel-per-day record set in the midst an intense Northeast cold snap in late January, according to Tim Evans, senior energy analyst at


. Last week's unexpectedly high draw in distillates left stock levels 29.9 million barrels below last year's levels, though that is still within the range of the past six weeks.

The decline in oil inventory levels last week is likely to bolster this week's bullish sentiment, Evans said, though he added that the draw-down in crude oil could be excused as an intentional move by refiners planning maintenance. Many major refiners plan regular maintenance work on their facilities in the late fall.

"In any case, it may take some time for the market's upward momentum to dissipate so that a meaningful price reversal can develop," said Evans, who calls the recent rally in crude oil prices more of a psychological event than a fundamental one.

Prices Still Higher

Oil prices remain sharply higher than the $22 to $28 a barrel range sought by the

Organization of Petroleum Exporting Countries


OPEC agreed to raise its production ceiling to 26.2 million barrels per day beginning Oct. 1, in an attempt to push down global oil prices. But the

Energy Information Administration

, a division of the

Department of Energy

, estimates that the cartel had already been producing above that level, due mainly to production increases in Kuwait, the United Arab Emirates and Saudi Arabia.

A survey released Wednesday by


, a global energy market information service, said OPEC's 10 members (excluding Iraq) pumped an average of 26.3 million barrels a day in September, higher than the quota implemented this month and far more than the previous output ceiling of 25.4 million barrels a day agreed upon in July.

Government and independent agencies figure most OPEC members are now producing at or very near their capacity. Still, the Energy Information Agency projects that the group could produce about 600,000 barrels of oil a day above the newly implemented production quota, with almost all of it coming from Saudi Arabia.

According to John Kingston, global director of oil at Platts, the only two countries with significant unused capacity are Saudi Arabia and the United Arab Emirates.

"While that does not necessarily signal a price increase in the future, any industry operating at that high level of capacity would be buffeted by upward price pressure," Kingston said in a statement.

Despite the additional oil produced by OPEC and the 30 million barrels

President Clinton

ordered to be released from the nation's Strategic Petroleum Reserves, concerns of supply shortages have prompted analysts recently to

revise their crude oil price projections. Many now estimate prices will remain above $30 a barrel until next year.