Price of crude surges after government report

US light crude oil has broken above $106 per barrel, hitting a 15-month high, after data from the US Energy Department showed a big drop in crude inventories for the second week in a row.

US light crude futures for August rose sharply today, trading up 2.8% at $106.40 per barrel by mid-afternoon in New York following the release of data showing a big drawdown in US stockpiles of crude oil.

The Energy Information Administration said that crude oil inventories fell 9.87 million barrels to 373.9 million last week, a far bigger drop than had been anticipated by analysts. This follows an even bigger draw in the previous week, with US crude supplies having decreased by more than 20 million barrels in the space of just a fortnight.

The reduction in supplies is indicative of the strength of demand, as oil production is still rising, climbing 1.8% last week.

Gasoline stocks also declined, dropping 2.6m barrels, despite an increase in refinery operation. Capacity utilisation at refineries rose 0.2% to 92.4%.

OPEC today issued its first set of forecasts for next year, saying that dependence on OPEC’s supplies is waning, on account of increase oil production in North America. The cartel projects that world oil demand will increase by 1 million barrels (around 1.2%) in 2014 in step with economic recovery and expansion, although forecasts for this year have been kept largely unchanged.

Non-OPEC oil supplies are set to increase by 1.1 million barrels a day in 2014, according to OPEC’s report, with much of those increases driven by rising production in US and Canada, where advances such as horizontal drilling and fracking have opened up previously inaccessible supplies of shale oil and gas.

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