(Crude oil story updated for Wednesday settle price in crude contract and energy stock performance)



) -- Crude oil prices continued to hold new 30-month high levels on Wednesday, as global inflation and macroeconomic policy, the weakness of the U.S. dollar, the latest crude inventory data from the U.S. government, and the continuing unrest in the Middle East sent cross-currents into the oil trade.

The crude oil contracts traded down from their highest intraday levels by the close of the market, but held to key psychological trading levels with small percentage gains during Wednesday trading.

U.S. crude oil settled at $108. 83 on Wednesday afternoon. U.S. crude settled lower than its highest trade on Wednesday, which was above the $119 mark.

Brent crude was recently trading around the $122 mark.

The decision by the European Central Bank to raise interest rates for the first time since the financial crisis was the headline macroeconomic inflation issue only a day after China said it was again raising interest rates to tame inflation.

The euro rose on the ECB decision, while the U.S. dollar fell, and given the relationship between the dollar and crude oil, the currency action provided strength to the oil trade.

"We are seeing consolidation in the WTI trade around the $108 level, and the weakness in the dollar is adding further support to crude prices," said Matt Smith, commodities analyst at Summit Energy. "The next psychological level is $110. The market may not want to push WTI higher, but at the same time, there is no impetus right now to sell off either and oil prices could creep up in the next few days," Smith said. He also noted that the geopolitical risks, led by Yemen and Libya, remain in place, and all of the important weekly data points have now been released with the latest crude inventory data showing no surprises on Wednesday, and that the ISM non-manufacturing slip in March already factored in as a major economic data point.

Crude inventory increased by the two million barrels, a little more than the analyst consensus but the trend was in line with expectations. The government crude oil data bucked the data released by the American Petroleum Institute on Tuesday night, a common disconnect between the API and government numbers, with the API indicating a drawdown of close to 3 million barrels in the most recent week.

OPEC said on Wednesday at a conference in Paris that there was no shortage of crude oil in the market and that speculation was driving the trade.

At the moment, the crude inventory data is not a driving force behind oil prices, and the demand-destruction warnings that the markets are watching for in the crude reports haven't surfaced, even if gasoline demand ticked down slightly in the Wednesday government crude report. The latest national gasoline average is $3.69 at the pump, and it's not until the U.S. reaches a national average of $4 that the demand-destruction issue will become a prominent trigger for crude oil prices, Summit Energy's Smith said.

"With Cushing remaining at such a high level and a minimal draw on inventory in the U.S., we won't see a good deal of selling off in the oil trade because of the Middle East situation, and this trend had been in place for a good while now and is exacerbated by the weakness in the dollar," Smith added.

"I don't think we will blast through $110, but we could test it by the end of the week," Smith said, and he pointed to the ongoing risks in Yemen as a more immediate trigger than the ongoing conflict in Libya. While the Libyan production that is offline has already been quantified, the potential repercussions in Saudi Arabia from the Yemen situation remain the "oil unknown" that could cause another spike in oil prices.

On Wednesday, the inflation-fighting efforts in Europe and China, and the U.S. view of the "inflation monster" were prominent.

"Once again we see money plowing into commodities as Europe looks to raise rates while here in the U.S. we stand flat.... The EU has backed itself into a corner as inflation starts to creep out of its target rate. Yet a rate increase in Europe may make inflation worse as it will cause a run on commodities as the world's two largest economies get out of whack," Phil Flynn, market strategist at PFG Best wrote on Wednesday morning.

With China raising rates for the fourth time since last October, PFG Best's Flynn wondered why oil wasn't rising even more and breaking out like other commodities. The Chinese inflation issue, not long ago considered the most important macroeconomic trigger, was not having a major impact on the markets.

Summit Energy's Smith said that while the ECB rate increase and Chinese inflation moves have been accepted by the markets and risk appetite remains in place, the EU and China situation part ways as a trigger for the oil trade. In China, the rate hike is the base tool to keep growth from getting out of hand, while in Europe, growth is not a problem that can be compared to the Chinese economic situation, yet inflation is rising in an EU zone that remains vulnerable. "These rate rises in Europe are an issue more than rate hikes in China because the economic situation of the EU is more fragile," Smith said.

Portugal became the third EU nation, after Ireland and Greece, to ask the European Union for a bailout package, formally making the long-anticipated request stemming from its debt problems on Wednesday.

"Is oil feeling a bit left out? While commodity prices and gold hit record highs, oil is having a hard time breaking out of this $108 resistance area," Flynn said Wednesday. "That is perhaps because other commodities are catching up to oil. While the oil market has soared due top geopolitical strife and the dollar, it appears that more than anything we are seeing the resumption of the carry trade."

It was a profit-taking day among energy stocks. The energy sector as a whole was down on Wednesday by 0.5% as the broad equity indexes gained one-quarter of a percentage point.

Among the super majors, it was international oil and gas companies leading the way on Wednesday, with




Royal Dutch Shell




(YPF) - Get Report



(BP) - Get Report

outpacing most of the U.S. oil and gas majors.


(COP) - Get Report

was the only U.S. major to finish in the green during Wednesday trading, and only with a marginal gain.


(HES) - Get Report

had the biggest loss among U.S. oil companies on Wednesday, down 1.8%.

The major U.S. independent oil and gas producers took a step back on Wednesday, too, led by declines in shares

Southwestern Energy

(SWN) - Get Report


Range Resources

(RRC) - Get Report


Cabot Oil & Gas

(COG) - Get Report


EOG Resources

(EOG) - Get Report

, with Range Resources 2.5%. leading the retreat.

The high-flying oil service stocks also saw negative trading on Wednesday, with





(HAL) - Get Report


Weatherford International

(WFT) - Get Report

all down by between 2.5% and 3%. By the close on Wednesday, oil service stocks hit their lowest share prices over the course of the past five trading sessions.

-- Written by Eric Rosenbaum from New York.


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