Oil hits record after U.S. inventory surprise

Oil hit a record high near $115 a barrel on Wednesday after a U.S. government supply report showed an unexpected drop in crude inventories in the world's top consumer.

Crude stocks in the United States, expected to increase, fell 2.3 million barrels last week, the Energy Information Administration said. Gasoline inventories posted a larger-than-forecast decline.

"This is very clearly a bullish report and we've got gasoline and crude leaping higher on the numbers," said Mike Fitzpatrick, senior vice president at MF Global.

"Gasoline was the big one."

U.S. crude struck a record $114.95 after the report was released and was trading up 43 cents at $114.22 as of 1456 GMT. Brent crude hit an all-time peak of $112.73.

The EIA data also showed gasoline stocks declined by a larger-than-expected 5.5 million barrels. Inventories of distillates, forecast to decline, posted a small increase of 100,000 barrels.

London's ICE gas oil futures, the benchmark for heating oil and diesel in Europe, also lent support. Gas oil has remained above $1,000 a tonne for most of the time since early April.

"It is predominantly linked to localised demand strength in distillates," said Harry Tchilinguirian of BNP Paribas of the oil market's strength.

Today's oil prices are far in excess of the average of around $26 a barrel in 2002 when oil began its extended bull run.

The market has been driven by chronic underinvestment in oil and refining infrastructure and more recently by the weak dollar and a wave of buying across commodities as investors seek a hedge against inflation.

"The dominant factor continues to be the U.S. dollar and I expect this to continue for a while," said Gerard Rigby, an analyst at Sydney-based Fuel First Consulting.

"Whenever you get any kind of good economic news out of the (United States) at the moment, the dollar will rise and oil falls, and the other way round, you get a new oil record."

The dollar headed towards a record low versus the euro on Wednesday, hurt by caution ahead of quarterly earnings announcements by major U.S. banks and worries about the turmoil in credit markets.

Lifting some concerns over a supply squeeze, Mexico, a major supplier to the U.S., reopened its three main Gulf of Mexico oil ports as bad weather cleared, the government said. Only a smaller Pacific port remained shut.