Oil prices rose Wednesday as traders shifted focus from U.S. economic problems to shrinking global crude supplies amid a decline in output from the Gulf of Mexico and elsewhere. Light sweet crude for November delivery rose more than $1 to near $108 a barrel in late-morning trade on the New York Mercantile Exchange. On Tuesday, the contract fell almost $3 to $106.61. Crude prices have risen $17 in the past week as investors pour money back into commodities because of concerns that a proposed $700 billion rescue of U.S. financial firms will weaken the U.S. dollar and increase inflation. In recent days, however, oil markets have watched as world crude supplies shrink. About two-thirds of oil production and 61 percent of natural-gas output in the Gulf of Mexico remains shut after the passage of Hurricanes Gustav and Ike, the U.S. government said. The gulf region produces a quarter of U.S. oil production and 40 percent of refining capacity. Meanwhile, the Energy Department reported Wednesday that U.S. crude inventories fell unexpectedly last week, dropping by 1.5 million barrels to 290.2 million barrels. Gasoline supplies fell by 5.9 million barrels to 178.7 million barrels, while U.S. refineries ran at 66.7 percent of total capacity, down 10.7 percentage points from the previous week. Stockpiles of distillates - including diesel, heating oil, and jet fuel - fell by 4.2 million barrels to 125.4 million barrels. Analysts had expected an increase.
