Oil prices up after US inventory report

NEW YORK: Oil prices jumped above $42 per barrel Wednesday with a government report showing demand for gasoline is on the rise and crude inventories are not growing as fast as was thought.

Light, sweet crude for April delivery gained $2.54 to settle at $42.50 on the New York Mercantile Exchange.

Phil Flynn, an analyst at Alaron Trading Corp., said a drop in retail gas prices, combined with the Energy Department report that showed demand is rising, had traders pumping money into energy stocks.

Gasoline futures soared 8 percent.

Drivers "like a bargain, and when they see those prices go down, they'll fill up," Flynn said.

"Consumers are spending more on gasoline."

But Geoff Sundstrom, a fuel price analyst for auto club AAA, cautioned that it's too soon to say whether U.S. motorists have returned to their old driving habits.

"I'd love to be more optimistic," Sundstrom said.

"But we don't have enough information to say that Americans are getting out in large numbers."

There is too much economic data rolling out each day that suggests the U.S. economy is far from recovering, he said.

For example, the National Association of Realtors said Wednesday that sales of existing homes unexpectedly plunged in January to the lowest level in nearly 12 years.

And luxury retailer Saks Inc. also reported a fourth-quarter loss as it slashed prices to hold onto affluent shoppers.

Bankrupt telecom equipment company Nortel Networks Corp. also said it would slash 3,200 jobs over the next several months.

The cuts come on top of a previously announced reduction of 1,800 jobs.

The Energy Department's Energy Information Administration report said U.S. gasoline inventories dropped almost 2 percent for the week ended Feb. 20.

Gasoline production also increased last week, averaging 8.9 million barrels per day as refiners take advantage of a market that's awash in cheap crude, analyst Stephen Schork said.

"For the first time in a year they can make money manufacturing gasoline," he said.

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