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Oil back above $90 US

Oil prices rebounded from early losses Wednesday and returned above $90 US a barrel on more positive news about the U.S. economy and a report showing that American crude supplies shrank last week.



After falling as low as $88.10 US a barrel, February oil reversed course and closed up 92 cents from Monday’s settlement price to $90.30 US a barrel on the New York Mercantile Exchange.


The American Petroleum Institute said late Tuesday that crude inventories fell by 7.5 million barrels last week.


Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had forecast a drop of 1.6 million barrels.


Crude supplies have fallen for five weeks, but are still above levels from the previous year.

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.”

The rise in oil followed two reports that suggested growth in the U.S. economy.

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.


And payroll processor ADP said private companies added 297,000 jobs in December, almost three times the number economists expected.


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