Crude Oil Rises to Record Above $144 After U.S. Stockpile Drop

By Christian Schmollinger

July 3 (Bloomberg) -- Crude oil rose to a record above $144 a barrel in New York after a U.S. government report showed an unexpected decline in inventories and as an expected increase in euro interest rates may spur commodities buying.

Supplies dropped 1.98 million barrels to 299.8 million last week, the lowest since January, the Energy Department said yesterday. Analysts assumed a gain of 500,000 barrels. The European Central bank may boost interest rates today, further weakening the dollar and causing investors to buy oil contracts as a hedge against inflation.

``The combination of the weaker U.S. dollar along with the bullish inventory data that's what spurred prices to the highs,'' said Toby Hassall, a research analyst at Commodity Warrants Australia in Sydney. ``If the ECB raises rates, I think we'll see more weakness in the dollar and upward pressure on U.S. denominated commodities such as crude.''

Crude oil for August delivery climbed as much as 87 cents, or 0.6 percent, to $144.44 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. It was at $144.34 at 9:27 a.m. in Singapore. Futures have more than doubled in the past year.

Oil's appeal as a hedge against inflation may increase if the European Central Bank boosts interest rates today, causing the dollar to fall. The bank will lift its 4 percent benchmark main refinancing rate by a quarter-percentage point, according to 57 of 58 economists surveyed by Bloomberg News.

Brent Record

Brent crude for August delivery rose 85 cents, or 0.6 percent, to a record $145.11 a barrel on London's ICE Futures Europe exchange.

Russian President Dmitry Medvedev, whose country is the world's second-largest oil producer, said he expects oil will hit $150 a barrel, and suggested the high price will slow global economic growth.

``I have said that oil prices will reach $150 a barrel,'' Medvedev said in a meeting with reporters in Moscow ahead of his participation in a summit of the Group of Eight industrial countries in Japan next week. ``Unfortunately, rising oil prices create problems for the world's economy.''

Oil prices were steady yesterday when the Energy Department report was first released and showed a gain in fuel inventories.

U.S. gasoline inventories rose 2.1 million barrels to 210.9 million and supplies of distillate fuel, including heating oil and diesel, increased 1.3 million barrels to 120.7 million barrels, the Energy Department said in its report today.

The margin for turning three barrels of crude into two of gasoline and one of heating oil rose 6.4 cents to $12.678 a barrel, based on futures prices. That's 38 percent lower than $20.5140 reached on June 3.

Refineries operated at 89.2 percent of their capacity, the department reported, 0.6 percentage point higher than the week before. Refiners operated at 90 percent of capacity a year earlier.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net