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Oil hits $124 a barrel on supply issues

Associated Press

NEW YORK -- Oil futures rose to a new record near $124 a barrel Wednesday after the Energy Department reported an unexpected drop in diesel and heating oil supplies last week. At the pump, gas prices rose for the first time since last week.

Light, sweet crude for June delivery hit a new record of $123.80 in afternoon trading on the New York Mercantile Exchange before retreating slightly to trade up $1.75 at $123.59 a barrel.

The department's Energy Information Administration said in a weekly report that distillate fuels, which include diesel and heating oil, fell unexpectedly while gasoline demand rose slightly last week. Traders chose to focus on those numbers and shrug off crude inventories, which rose much more than analysts predicted, and gasoline supplies, which increased when analysts forecast a decline.

"We've got heating oil pulling up the complex," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

June heating oil futures rose 9.44 cents to $3.4479 a gallon after earlier rising to a new trading record of $3.4524.

Earlier, oil prices waffled as traders were torn between relief that crude and gasoline supplies are rising versus worries about rising demand and falling distillate stockpiles. But the fact that prices didn't decline sharply signaled to some investors that the market was poised to rally, analysts said. "It shows you that this market ... at times just ignores bearish news," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Oil prices didn't react to the dollar, either, after it strengthened against the euro.

The dollar's protracted decline against the euro and other foreign currencies has played a major role in oil's rise by attracting investors looking for a hedge against inflation. When the dollar reverses course and strengthens, the effect usually reverses, sending oil prices lower.

At the pump, the average national price of a gallon of regular gas rose Wednesday for the first time since last week, adding 0.8 cent to $3.618, according to a survey of stations by AAA and the Oil Price Information Service.