Spot crude oil traded above $71 a barrel following yesterday's American Petroleum Institute (API) report estimating a 254,000-barrel decline in domestic supplies. The API forecast put the trade group at odds with a call by Street analysts for a buildup of 2 million to 2.2 million barrels in U.S. oil inventories.

November NYMEX crude settled day-session trading at $70.88 Tuesday before prices spiked to a $71.76 high in electronic trading. Later in overnight trading, prices slumped on profit-taking ahead of this morning's weekly U.S. Energy Department inventory report.

Tuesday, traders in the NYMEX ring pushed up crude prices 0.7% to cap a week of increases. Nearby November crude picked up more than $4 a barrel - better than 6% - in the past five trading days. At the same time, gasoline prices rose more than 7%, while heating oil gained 5%.

API's forecast was ultimately vindicated when the government figures were released today. Crude oil inventories were actually drawn down by a million barrels from the previous week. At the same time, gasoline stocks increased by 2.9 million, and distillate fuel supplies, including diesel and heating oil, were built up by 700,000 barrels.

NYMEX Product Cracks

Energy Department figures show refining runs were stepped up slightly. Plants operated at 85% of capacity last week, boosting gasoline production to a daily average of 9.4 million barrels. Distillate fuel production also ticked up to 4 million barrels per day.

Gasoline demand has averaged about 9 million barrels per day, according to the Energy Department, up 6.2% from year-ago levels. Concurrently, MasterCard reported daily gasoline consumption averaged 9.2 million barrels last week, the highest demand recorded since August.

Distillate fuel demand, meantime, has averaged 3.4 million barrels per day, down 9.5% from the same period last year.

This week, refining runs favored gasoline and lighter distillates as gross margins between 6.8% and 7.3% were noted. The premium commanded by lighter, sweeter West Texas Intermediate crude over North Sea Brent more than doubled this week to $2.71 a barrel.

Crude's three-month roll shrank to an average $1.13 a barrel this week, reflecting a tighter market mentality among traders. Last week, the spread averaged $1.60 a barrel.

In crude oil futures, swap dealers and large, noninstitutional speculators got notably longer last week. Money managers, however, shortened up their positions significantly but still maintained a bullish bias. Producers, users and commercial intermediaries are presently the only traders carrying net short positions.

Technically, crude oil bulls have taken the lead. Stochastics, RSI and MACD indicators have turned positive, though volume in the nearby November contract has fallen off as prices rose over the past few sessions.

September's high of $73.58 is the bulls' next upside target, though a close below this week's $68.05 low would dampen their sentiments.

Nearby NYMEX Crude Oil

*Note: The monetary inflation rate is calculated daily and represents the change in our proprietary index over the last 12 months. We update long-term inflation in real time as well. Since 1999, the compound annual growth rate in our index is 4.9%.