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Crude supplies fall and a barrel rises above US$72

ENERGY prices jumped sharply Wednesday on new indications of economic activity that could renew demand for oil, gasoline, and natural gas.

Prices began to rise early yesterday after the government reported a large drop in crude supplies.

Benchmark crude for October delivery settled up US$1.58 at US$72.51 a barrel on the New York Mercantile Exchange. On Tuesday, the contract rose US$2.07 to settle at US$70.93.

Natural gas prices continued their recent tear after hitting a seven-year low this month, rising more than 13 percent yesterday.

Manufacturing and other heavy industries have been damaged by the global economic downturn and as major consumers of natural gas, prices have plummeted.

The Fed said yesterday industrial activity surged 0.8 percent in August, better than the 0.6 percent increase economists had forecast. The Fed also revised July's figures to a 1 percent increase, twice as much as originally reported.

That buoyed both the stock market and energy prices, which have been in a holding pattern for months with few signs of a solid economic rebound.

Still, there are abundant signs that the recession is still weighing on consumers and businesses for which travel has slowed to a crawl.

Supplies of gasoline increased by 500,000 barrels and inventories of distillate fuels used for diesel fuel and heating oil rose by 2.2 million barrels, the EIA reported.

While the government said demand for gasoline rose 3.5 percent over the past four weeks compared with a year ago, it was at this time in 2008 when hurricanes Gustav and Ike curtailed production in the Gulf of Mexico and sent gasoline prices skyrocketing in parts of the country.

The lack of demand for gasoline has given beleaguered consumers who are watching every dime something of a cushion this year.

Prices at the pump dipped again, falling 0.7 cents to US$2.556 a gallon overnight, according to auto club AAA, Wright Express and Oil Price Information Service. Prices are 8.5 cents lower than a month ago and US$1.298 below year ago prices.

Jet fuel demand is down 6 percent during the same period.

Oil prices were also getting a boost from the weak dollar.

The dollar plumbed new depths yesterday, as the euro rose to US$1.4722 against the U.S. currency, from US$1.4656.

Crude is priced in dollars so it becomes cheaper when the dollar falls. Some investors also use commodities such as oil and gold as a hedge against inflation and dollar weakness.

The spike in natural gas has left many energy experts skeptical because industrial demand is so low. Still, prices hit new seven year lows earlier this month on the eve of the winter heating season, much too far in the eyes of others.

Natural gas jumped 44 cents to settle at US$3.76 per 1,000 cubic feet yesterday

In other Nymex trading, gasoline for October delivery rose 5.91 cents to settle at US$1.8483 a gallon, and heating oil rose 4.57 cents to settle at US$1.8258 a gallon.

In London, Brent crude rose US$1.81 to settle at US$71.67.


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