Oil prices rose more than 1% Wednesday after a government report showed a dramatic drop in U.S. crude supplies.
In midday trading, benchmark crude rose $1.16 U.S. to $98.40 U.S. a barrel in New York. Brent crude was up 58 cents U.S. at $107.31 U.S. a barrel in London.
Oil inventories typically fall at the end of the year because refiners draw down their inventories for tax reasons, but Wednesday's drop was far larger than analysts expected.
The Energy Information Administration said Wednesday that inventories fell by 10.6 million barrels. Analysts on average forecast a drop of 2.3 million barrels, according to Platts, the energy information arm of McGraw-Hill.
After the first of the year, refiners will start building up their supplies again.
Oil prices are also being pushed up by better global economic news and fears that strife in some important oil-producing nations could restrict supplies.
Tensions between Iran and Western nations are rising over Iran's nuclear ambitions, raising fears that oil from the world's fourth-biggest producer may be kept from reaching markets in the coming weeks.
Oil traders also are concerned about political instability in Kazakhstan, which exports about 1.3 million barrels of oil per day, about 1.5% of world demand. The Central Asian nation has been battling political protests that have resulted in about 15 deaths in the last month.
Encouraging news about consumer confidence in Germany, a debt auction in Spain and more housing construction in the U.S. sent world stock markets soaring and oil prices up more than 3% on Tuesday. On Wednesday, however, stock markets in the U.S. and Europe fell back on worries over Europe's ongoing debt crisis. This likely stopped oil from rising even further than it did, analysts say.
Retail gasoline prices were little changed at a national average of $3.21 U.S. per gallon, according to several agencies.
In other energy trading, heating oil rose 5.49 cents U.S. to $2.9043 U.S. per gallon, and gasoline futures rose 2.65 cents U.S. to $2.6052 U.S. per gallon. Natural gas rose five cents U.S. to $3.179 U.S. per 1,000 cubic feet.
