Oil prices rebounded from early losses Wednesday following more positive economic news and a government report that showed crude oil supplies shrank last week. After falling as low as $88.10 a barrel, benchmark oil reversed course at midday and went on to settle 92 cents higher at $90.30 a barrel on the New York Mercantile Exchange. Rising oil prices over the past month continue to boost gasoline pump prices. The national average for regular gasoline rose overnight to $3.077 a gallon, according to AAA, Wright Express and the Oil Price Information Service. That's nearly 13 cents more than it was a month ago. Motorists in about half the states in the country pay at least $3.04 a gallon.
U.S. commercial oil supplies fell 1.2 percent to 335.3 million barrels last week, according to the Energy Department. The total is about 2.4 percent above year-ago levels.
Supplies of gasoline and distillates, which include heating oil and diesel fuel, increased last week and remain near or above average stockpiles over the past five years, the Energy Information Administration said.
Oil supplies have dropped in the past six to eight weeks, returning to a level that is closer to normal than it was early last fall, said Michael Lynch, president of Strategic Energy & Economic Research. Investors look not so much at current supply and demand levels but where they're headed, Lynch said. If inventories are declining, investors tend to be more optimistic about future demand.
Yet Lynch isn't convinced that oil will hit $100 a barrel this year as other analysts have predicted. "Even with a good economy ... it doesn't seem like the market's going to tighten significantly for oil products," he said. "You've got high inventories and still relatively weak demand."
There was more positive news about the economy on Wednesday. The Institute for Supply Management, a trade group of purchasing executives, said its index of service sector activity rose in December to the highest level in more than four years because of strong consumer demand. The news follows Monday's ISM report that manufacturing activity grew at its fastest pace in seven months.
And the employment picture brightened as payroll processor ADP said private companies added 297,000 jobs in December, almost three times the number economists expected.
In other Nymex trading in February contracts, heating oil added 3.57 cents to settle at $2.5422 a gallon and gasoline gained 3.11 cents to settle at $2.4451 per gallon. February natural gas futures fell 19.6 cents to settle at $4.473 per 1,000 cubic feet.
In London, Brent crude rose $1.97 to settle at $95.50 a barrel on the ICE Futures exchange.