Crude Hits Record High

The new mark is reached as oil rises $1.61 to $67.32 a barrel. A tropical storm causes worry.
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Updated from 3:15 p.m. EDT

Oil prices closed at an all-time high Wednesday as gasoline inventories fell for the eighth consecutive week and a tropical storm forming in the Atlantic Ocean stoked concerns about possible supply disruptions in the Gulf of Mexico.

Crude for October delivery closed up $1.61 at a record high of $67.32 a barrel on Nymex. Gasoline futures rose 6 cents to $1.92 a gallon. Meanwhile, natural gas prices reached $10 per thousand cubic feet for the first time in more than two years.

The Energy Department said in its latest inventory report that for the week ended Aug. 19 crude inventories rose by a larger-than-expected 1.8 million barrels. Gasoline stocks fell by 3.2 million barrels, significantly more than the 900,000-barrel estimated drop. Distillates, which include diesel and heating oil, rose by 1.4 million barrels, in line with expectations.

Refiners operated at a 93.4% utilization rate, as gasoline production declined to 8.6 million barrels a day.

Demand for crude was up 1.6% compared with the same time a year ago, confirming that high prices at the pump have yet to slow down consumption. Demand for distillates looked particularly strong at 4.3% above the year-ago period.

"Gasoline is definitely the interesting story today," said Seth Kleinman, an oil market analyst at PFC Energy. "There was a big draw in gasoline despite high imports, which means refineries are not keeping up with demand."

Tim Evans at IFR Markets says Wednesday's rally was primarily driven by the gasoline inventory drop. "It doesn't take much to spur the adrenaline of this market," he said. "After last week's gasoline rally to $2, gasoline was short-term oversold. Now it's up again in a wild-ride session."

Last week, a 5-million-barrel drop in gasoline triggered selling in the energy market as funds took profits. "I don't think we'll have the same reaction to the gasoline draw this week, because a lot of money was already taken off the table last week," Kleinman said.

Oil prices moved higher as weather reports showed that a tropical depression was strengthening into Tropical Storm Katrina as it moved through the Bahamas toward southern Florida and the Gulf of Mexico.

The storm reportedly had winds of 40 miles per hour and was moving northwest toward Nassau at 8 mph. The storm is forecast to hit southern Florida Friday, and it could cross the state in to the Gulf.

Most of the U.S. oil production infrastructure is based in the Gulf of Mexico, producing roughly 5 million barrels a day. Mexican oil companies operating in the Gulf produce another 1 million barrels a day.

In China,

PetroChina

(PTR) - Get Report

, a unit of China's National Petroleum Corp., said net profit rose 36% in the first half of 2005, driven by soaring oil prices. The company earned 61.6 billion yuan, or $7.6 billion, up from 45.3 billion yuan a year ago, the

AP

reported. PetroChina also said strong economic growth in China supported its bottom line.

Elsewhere,

McDermott International

(MDR) - Get Report

, the New Orleans-based oil service and equipment provider, said it received a marine installation contract for a

Chevron

(CVX) - Get Report

project in the Gulf of Mexico. The company didn't disclose the value of the deal.

Analysts covering McDermott, including Martin Malloy at Hibernia Southcoast Capital, estimated the deal's worth at $50 million.

Major oil producers' shares were up driven by oil's price rally.

Exxon Mobil

(XOM) - Get Report

gained 0.1%,

ConocoPhillips

(COP) - Get Report

rose 1.3%,

BP

(BP) - Get Report

increased 0.5%, and Chevron added 0.2%.

Refiners were the biggest beneficiaries of the surging fuel prices.

Valero

(VLO) - Get Report

was up 2.6% to $90.63 and

Frontier Oil

(FTO)

climbed 3%.

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The Philadelphia Oil Service Sector Index was up 1.3% in late trading, led by gains at

Halliburton

(HAL) - Get Report

, which rose 3%, and

Nabors Industries

(NBR) - Get Report

, which jumped 2.8%.