Oil prices rise to record highs above $144

NEW YORK — Oil prices shot to new records above $144 a barrel Wednesday as the government reported a bigger-than-expected drop in U.S. supplies and the threat of conflict with Iran weighed on traders' minds.

Light, sweet crude for August delivery rose as high as $144.15 on the New York Mercantile Exchange shortly after the market closed. The contract also notched a new closing record, settling at $143.57 — a full $2.60 above the previous high from a day earlier.

The Energy Department's Energy Information Administration said crude oil supplies fell by 2 million barrels last week, or about 800,000 barrels more than analysts surveyed by the energy research firm Platts predicted.

However, that same report offered a mixed picture of energy use by the world's thirstiest oil consumer. Gasoline supplies unexpectedly grew by a considerable amount, and demand continued to slide — suggesting that record fuel prices are prompting a real shift in Americans' driving habits.

The inventory report was only one factor in Wednesday's rally, which came one day before investors left for a three-day weekend. U.S. oil markets are closed Friday for July 4th.

"It's a combination of things," Phil Flynn, analyst at Alaron Trading Corp. in Chicago, said of the day's run-up. "People are buying oil because they're worried about tight supplies, the weak dollar, war breaking out in Iran. It doesn't look like any of this stuff is going to settle down any time soon."

Prices at the pump hit a new high ahead of the holiday weekend, jumping half a penny to a new national record of $4.092 a gallon on average, according to AAA, the Oil Price Information Service and Wright Express.

Ongoing rhetoric about possible attacks on Iran, the world's fourth-largest oil producer and OPEC's second-largest exporter, left the market jittery.

Traders are worried Tehran could try to halt shipments and seize control of the strategically important Strait of Hormuz if attacked by Israel or the United States. About 40 percent of the world's tanker traffic passes through the Middle Eastern choke-point.

"When you start hearing these type of stories as an oil trader, it's hard to dismiss them," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

Iran's oil minister warned Wednesday that an attack on his country would provoke a fierce response, but said Tehran would not cut oil deliveries and would continue supplying the market even if struck.

In New York, however, Iran's foreign minister did not rule the possibility that Iran could try to restrict oil traffic in the strait if the country was attacked.

"In Iran we must defend our national security, our country and our revolutionary system and we will continue to do so," Foreign Minister Manouchehr Mottaki said in an interview with The Associated Press.

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