Oil jumped $3 to $93 a barrel on Wednesday as the U.S. Federal Reserve and several other major central banks moved to ease credit tensions and U.S. crude stocks fell to the lowest point since early 2005.
U.S. oil traded up $3.00 higher to $93.02 a barrel by 1:04 p.m., while London Brent crude traded up $2.68 at $92.67 a barrel.
Crude prices extended Tuesday's gains of more than $2 after the Fed announced the creation of a temporary short-term lending facility to ease credit market strains in concert with market-calming actions by the Bank of England, the European Central Bank and other major central banks.
The crude market has risen here more on the Fed action as its move on liquidity will help economic activity overall, said Kyle Cooper, research director at IAF Advisors in Houston. The EIA data was not that bullish.
The move came after the Fed cut interest rates by a quarter point on Tuesday, disappointing some market players hoping for a larger cut to revive the flagging U.S. economy.
Worries about the economic health of the world's top consumer have sent oil crashing down from peaks over $99 a barrel in late November, after winter supply concerns sent prices on a record rally from below $70 in mid-August.
U.S. government data showing a 700,000-barrel decline in U.S. crude inventories last week also boosted prices, sending stockpiles down to their lowest level since March 2005.
Distillates fell 800,000 barrels, while gasoline rose 1.6 million barrels, Wednesday's data from the U.S. Energy Information Administration showed.
From my perspective, the crude oil and distillate numbers are supportive, the build in gasoline stocks is more on the bearish side, said Tim Evans, energy analyst at Citigroup Futures Research.
Traders were also eyeing an oil spill off Norway, potentially the second biggest in the nation's history.
Norwegian energy group StatoilHydro said about 25,000 barrels of oil spilled from a loading facility at its Statfjord field in the North Sea while loading onto a ship. But the spill would not affect output from its 100,000-barrel-per-day Statfjord field.
Goldman Sachs, the most active investment bank in energy markets, forecast U.S. crude would average $95 a barrel in 2008, up $10 from the previous projection, and hit $105 by the end of next year.