Oil prices rebounded to another record high yesterday afternoon after initially plummeting when a government report said supplies of crude and gasoline had risen much more than expected.

In afternoon trading, US light crude for April delivery surged to a high of US$110.20 before closing at US$109.92. Oil had traded as low as US$107.09 following the report’s release on Wednesday morning.

In its weekly inventory report, the US Energy Information Administration, a government agency that measures oil and gas supplies, said crude stocks rose by 6.2 million barrels last week. Analysts were looking for a rise of 1.6 million barrels.

Gasoline supplies rose by 1.7 million barrels, significantly more than the 300,000 barrel rise that analysts had forecast. The government said gasoline stockpiles are well above average for this time of year.

Prices rising despite supply and demand

Typically, an increase in supply and low demand would result in much lower crude prices. But crude and gas prices continue to rise.

“This is all driven by speculation,” said one analyst, who believes that investors have poured money into the commodity to make some interest in a slumping economy. “That’s why we’ve seen a jump from 20,000 to 90,000 contracts this month.”

About an hour after the government report’s release, oil rebounded to around the level of Tuesday’s settle as investors continued to pour money into commodities.

“This market is not about supply and demand, it’s about the dollar,” said Alaron senior analyst Phil Flynn. “The dollar is weaker and investors are buying anything they can get their hands on.”

Gas demand much lower

The EIA revised its US oil and gasoline demand forecasts downward Tuesday, citing a slow economy and high oil prices.