Oil prices rise on surprise supply drop

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By CHRIS KAHN, Associated Press

NEW YORK (AP) — The price of oil climbed to near $89 per barrel Wednesday after the government said supplies have dropped more than analysts expected.

Benchmark U.S. crude rose by 85 cents to end the day at $88.91 per barrel in New York. Brent crude, which sets the price for imported oil, added $1.04 to finish at $105.96 per barrel in London.

Prices rose after the Energy Information Administration said U.S. oil stockpiles fell by a surprising 6.5 million barrels last week — four times what analysts forecast. The decline was mainly due to a drop in crude imports, not to a pick-up in demand for oil. Gasoline supplies also dropped unexpectedly last week, according to the EIA.

The economic news was mixed on Wednesday. The Commerce Department said that construction spending rose in June. But U.S. manufacturing activity fell in July and surveys showed that manufacturing activity barely grew in China.

The Federal Reserve said after a two-day meeting that the economy is getting weaker. Fed policymakers repeated a plan to hold short-term interest rates at record-low levels through late 2014. They didn't announce any new steps to spark growth, however. Economists are betting that won't come until September at the earliest.

Meanwhile, retail gasoline prices jumped 2.1 cents to a national average of $3.521 per gallon, according to AAA, Wright Express and Oil Price Information Service.

In other futures trading, heating oil rose 1.08 cents to finish at $2.8588 per gallon, while wholesale gasoline rose by 6 cents to finish at $2.8342 per gallon. Natural gas fell by 3.8 cents to finish at $3.1710 per 1,000 cubic feet.

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