Oil prices reach $80 a barrel for first time after government reports decline in inventories

NEW YORK — Oil futures prices briefly rose to a record $80 a barrel Wednesday afternoon after the government reported a surprisingly large drop in crude oil inventories and declines in gasoline supplies and refinery activity.

Other energy futures prices also rose.

The report from the Energy Department's Energy Information Administration suggested oil supplies are tightening even as demand remains strong. That's why oil prices are rising despite OPEC's decision on Tuesday to boost crude production by 500,000 barrels per day this fall, analysts said.

Light, sweet crude for October delivery rose $1.48 to $79.71 on the New York Mercantile Exchange after hitting $80 earlier.

Despite the rise, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Oil's recent advance has been largely due to speculative buying by big investment funds, who are responding to a price structure in which oil contracts for delivery in future months are cheaper than the current front-month contract, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

That kind of structure signifies tight demand in the immediate future, and is a buying incentive. Investors who buy now will end up with more oil contracts later, when October futures roll over to cheaper contracts for delivery in later months, Ritterbusch said.

"This is a market that wants to run up on the slightest bit of information," Ritterbusch said.

Prices were also being supported by worries a tropical depression that formed in the western Atlantic on Wednesday will become a hurricane and hit critical Gulf oil and gas infrastructure.

"The National Hurricane Center says there's a good chance that could get into the Gulf," Ritterbusch said.

In afternoon trading on the Nymex, October gasoline contracts rose 2.62 cents to $2.0073 a gallon.

Heating oil futures rose 2.51 cents to $2.2078 a gallon on the Nymex, while natural gas futures gained 37.2 cents to $6.306 per 1,000 cubic feet.

In London, October Brent crude gained 58 cents to $76.96 a barrel on the ICE Futures Exchange.

At the pump, meanwhile, the average national price of a gallon of gas inched higher by 0.1 cent overnight to $2.815, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May.