Oil prices surge as gasoline futures drop

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NEW YORK (AP) — Oil prices jumped to a record high today, and gasoline futures fell on the government’s report of a steep drop in crude inventories and surge in refinery activity.

“The refineries have finally gotten their act together,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. “They’re back to normal, almost.”

As the industry rebounds from a spring and early summer in which refiners experienced an unusual number of outages, it is drawing down crude inventories that had hit nine-year highs. Some investors see that draw as a sign crude inventories are tightening.

“That’s going to keep the [crude] market underpinned for now,” Mr. Flynn said.

Light, sweet crude for September delivery rose 24 cents to $78.45 a barrel on the New York Mercantile Exchange after rising as high as $78.77 earlier. That surpasses the previous intraday record of $78.40, set in July 2006.

On the other side of the petroleum supply chain, refineries are producing more gasoline. That news sent September gasoline futures down 1.57 cents to $2.0902 a gallon on the Nymex.

Retail prices typically lag the futures market, and prices at the pump fell by 0.9 cent overnight to a national average of $2.867 a gallon, according to AAA and the Oil Price Information Service. Gas prices peaked at $3.227 a gallon in late May. Gas futures have fallen steeply in recent weeks as refineries have ramped up operations.

In its weekly report, the Energy Department’s Energy Information Administration said oil inventories fell by 6.5 million barrels in the week ended July 27, far more than the 690,000-barrel decline analysts surveyed by Dow Jones Newswires, on average, had expected.

Refinery utilization jumped by 1.9 percentage points to 93.6 percent of capacity, more than double an expected increase of 0.7 percentage points.

Gasoline inventories rose by 600,000 barrels, the EIA said. Analysts had expected an increase of 1.1 million barrels.

Demand for gasoline remains strong, the EIA said, averaging nearly 9.7 million barrels per day over the past 4 weeks, up 1.1 percent from the same period last year.

Analysts have placed much of the blame for the recent run-up in oil prices on speculators and technical buying by large investment funds. However, the run can only last so long, many analysts argue.

“Oil does have a tendency to peak in late summer,” Mr. Flynn said. “Seasonally speaking, this bull market’s on borrowed time.”

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