U.S. Oil Prices Soar to Highest Level Since April

U.S. oil prices soared 45 cents a barrel Wednesday, rising well above the $18 barrier to their highest levels since April, on news of a report showing an unexpected drop in U.S. crude oil inventories and a strike by Mexican refinery workers.

On the New York Mercantile Exchange, the February contract for West Texas Intermediate, the benchmark grade of U.S. crude, rose 45 cents to close at $18.14 a barrel, its highest close since last April. Other contract months also rose.

The American Petroleum Institute, a trade group, said in its weekly report released late Tuesday that crude oil stocks fell by 5.5 million barrels in the week ending Jan. 6. This put total supplies at 329 million barrels, 14 million lower than at this time last year.

In Mexico, workers walked off their jobs at six state-owned oil refineries after the arrest Tuesday of the leader of the oil workers union and fellow officials on corruption charges.

Prices were also hit by news that Shell Oil Co. expects a refinery in Texas to be closed for the next 30 days because of a fire. The site processes 160,000 barrels per day. Shell said shipments of petroleum products would not be affected.

Saudis Slash Output

Some traders said the higher prices fed on themselves as they day went on. “Once crude oil futures traded above $18.05 a barrel, technical buy stops were touched off, pushing prices even higher,” one trader said.

The oil market has also gained support this year from new output limits by the members of the Organization of Petroleum Exporting Countries. The group began new limits Jan. 1.

While higher than the previous quotas, they were well below the actual production of most OPEC nations in the final months of last year. Early indications are that they are being respected.

Saudi Arabia, OPEC’s biggest producer, slashed output to 3.6 million barrels per day in the first week of January, below its new production quota of 4.5 million and much less than the 7.4 million barrels produced daily in the previous week, according to oil industry sources in the Persian Gulf.

U.S. oil traders and analysts said they are waiting to see at what levels other OPEC members are producing but expect that output will be only several hundred thousand barrels above the total ceiling of 18.5 million barrels daily.

West Texas Intermediate was trading in the $15 range when OPEC signed the agreement in November to cut back production to 18.5 million barrels.

“The market should move higher because OPEC is holding together,” said Richard Redoglia, broker at Merrill Lynch Futures.

Among refined products traded on the exchange, unleaded gasoline futures were mostly higher, influenced by the partial shutdown of Mexican refinery operations. The February contract for unleaded gasoline closed 0.79 cent higher at 48.70 cents a gallon.

World Markets Unconcerned

Heating oil futures ended the day mixed, with the February contract down 0.17 cent at 53.69 cents a gallon.

While the U.S. markets were strong, international markets showed little reaction to the inventory figures. North Sea Brent crude was quoted up a modest 10 cents for March delivery at $15.95 a barrel. One London trader said the fall reflected the market’s perception that the fall in U.S. supplies was a domestic matter and would not automatically affect other regions.