Will higher energy prices indicate greater inflationary pressure?
''U.S. oil futures shot to a new 14-month high Wednesday ahead of a government report expected to show a steep drop in domestic crude stockpiles.
Oil futures have rallied sharply in the last two weeks, as strong refinery demand has trimmed persistently high U.S. oil stocks. Late Tuesday, an industry group reported oil stockpiles last week tumbled 9 million barrels, surpassing expectations and leaving traders bracing for a similarly sizeable drop in government data due later Wednesday.
Light, sweet crude for August delivery rose $1.87, or 1.8%, to $105.41 a barrel on the New York Mercantile Exchange. The contract earlier rose as high as $105.49, its highest level since May 2012.
Brent crude on ICE Futures Europe rose a more modest 65 cents, or 0.6%, to $108.46 a barrel.
A weekly report on U.S. oil stocks from the Energy Information Administration, due at 10:30 a.m. EDT, is expected to show domestic inventories dropped 3 million barrels last week, according to analysts surveyed by Dow Jones Newswires.
But late Tuesday's report on a 9 million-barrel draw from the American Petroleum Institute had market participants on the lookout for potentially an even larger drop.
U.S. stockpiles have fallen sharply in recent weeks, falling nearly 14 million barrels after hitting their highest level on record in late May. Commercial crude stockpiles now stand at 387.8 million barrels as of June 28.
Stockpiles at the key oil hub of Cushing, Okla., have also fallen in recent weeks, as additional pipeline infrastructure has come online to reduce the glut of oil there. The site is the delivery point for the benchmark Nymex crude contract, and booming domestic production and insufficient takeaway capacity has caused crude there to trade at a persistent discount to global crude contracts for much of the last two years.
That's been changing in recent months. As recently as February, Nymex crude traded at a discount of $23 to Brent crude. Wednesday, the discount has collapsed to under $3, the smallest discount since December 2010, as an increasing number of refiners gain access to formerly landlocked crude in the midcontinent.
Gasoline futures also shot higher Wednesday, which could signal higher fuel prices later in the summer.''