(Oil prices story updated for Wednesday trading activity)

NEW YORK ( TheStreet) -- Light sweet crude oil prices rose again Wednesday, for the third straight day, as the twin headline risks of Middle East geopolitical tensions and Japan's devastating earthquake and tsunami continue to dominate market sentiment and energy prices.

Light sweet crude settled higher by 0.7% on Wednesday, at $105.75, yet another new high mark for crude oil since its last previous peak in September 2008. Light sweet crude had surpassed the $106 mark earlier in Wednesday trading.

Brent crude was down by 0.1% on Wednesday, settling at $115.55.

The U.S. headlined the weak macroeconomic data on Wednesday, with a home-sales report that missed expectations by a wide mark, showing new-home sales plunging to a record low. On Tuesday, there had been weak macroeconimic headlines out of Europe, with Portugal and Irish bonds on the critical default watch list.

However, oil prices remains tethered primarily to the Middle East headlines, where violence and the Libyan conflict continue to support elevated prices.

U.S. military commanders talked about days of air strikes that would continue, and the U.S. and its allies continued to work out issues related to overall strategy and management of the Libyan bombing campaign.

Officials in Bahrain and Saudi Arabia continue efforts to quell public unrest. Six protesters were killed in Syria on Wednesday. Opposition groups in Yemen have called for major protests on Friday. In Israel, there was an explosion at a Jerusalem bus stop on Wednesday that Israeli police called a terrorist attack.

Japanese authorities announced on Wednesday that tap water in Tokyo had been contaminated by radioactive substances, and management of the nuclear crisis continued to present challenges.

Neither the Libyan conflict nor Japanese nuclear crisis indicate quick roads to resolution.

"We're still seeing the follow through from the Middle East with a protest in Yemen planned, and deaths in Syria, and from Japan, more complications on the nuclear front. And we're again seeing economic data that is horrific, with the home sales in U.S., but the market is just not focused on that," said Matt Smith, commodities analyst at Summit Energy.

The latest U.S. crude inventory reports indicate continued oil demand even at the elevated oil prices, as opposed to the demand destruction that is feared as gasoline nears $4 per gallon in the U.S.

The American Petroleum Institute and Department of Energy's Energy Information Administration reported continued draw downs in gasoline stocks in the most recent week.

The American Petroleum Institute reported late on Tuesday a 7.9 million-barrel drop in gasoline stocks. On Wednesday morning, the EIA reported a draw down of gasoline stocks of 5.3 million barrels. Market expectations were for a decline of 2 million barrels in gasoline stockpiles.

Matt Smith, commodities analyst at Summit Energy, noted that as gasoline stockpiles were drawn down again, crude imports and crude production rose in the latest week, according to the EIA numbers. "There is real strength on the gasoline side of things, and that's been a continuing story. We're all looking at the psychological level of four bucks at the pump, but for the moment it's just not happening," Smith said.

Phil Flynn, market strategist at PFG Best, took a somewhat different view of the gasoline strength, and read the crude inventories data as, at best, an uncertain sign of continued strong demand. "The casual observer could look at the draw down and get excited, but really, this is a natural process; this is the time of year when we should be drawing down inventories," Flynn said.

The gasoline demand draw down surprise is also mitigated by the fact that crude inventories remains at historically high levels, contradicting any fears that there is a physical supply issue in the U.S. oil market.

Flynn said that if gasoline prices stabilize at this level, demand will hold up, but a sharp increase in prices remains a significant concern with the Libyan conflict, Israeli bus bombing, Syrian killings and all in all, "a tremendous amount of things that can go wrong, and it won't take much." Flynn noted that all it takes is one country in the Middle East to have an oil production issue related to political unrest and Japan, as well as other countries, to increase oil demand in the wake of the nuclear crisis, and oil prices could experience another sharp turn up.

"The bottom line is that there is still significant upside risk and nothing in today's inventory report that makes me change my call that light sweet moves up to $108 to $110," the PFG Best strategist said.

The Dow Jones Industrial Average and S&P 500 declined in the morning, but by Wednesday afternoon the major market indexes were in the green. Energy stocks were up in line with the broad equities market.

ConocoPhillips ( COP) was leading returns among the U.S. super majors on Wednesday, up by 1.7% on the day of its annual investor meeting in New York. ConocoPhillips announced on Wednesday that it plans to sell an additional $5 billion to $10 billion of non-core assets over the next two years, with proceeds from the increased asset sales funding its $10 billion share-repurchase program and spending plans. Almost 90% of ConocoPhillips' $13.5 billion 2011 capital program has been allocated to its exploration and production.

BP ( BP) and Anadarko Petroleum ( APC) were both higher on Wednesday after announcing a deal for Anadarko to acquire a BP natural gas plant for $575 million. BP gained 1.7% and Anadarko 1.8%, the best gains among prominent oil and gas companies.

Among small U.S. independent oil and gas companies that have benefited from the rising oil prices, Bronco Drilling ( BRNC) was the standout stock on Wednesday, up another 7%, after having risen 37% this year.

On the losing end of the energy tape on Wednesday, though, was a high-flying U.S. independent, Northern Oil & Gas ( NOG), down more than 9% after bears zeroed in on the company as an over-hyped Bakken shale play, and a report on StreetSweeper questioned the sustainability of the company's Bakken shale-based drilling. Northern Oil & Gas shares had gained close to 100% in the past year.

-- Written by Eric Rosenbaum from New York.

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