Crude tops $71 a barrel as inventories decline. Prices at the pump inch higher. Home Depot raises its full-year forecast. Mortgage applications hit a 4-month low. Chrysler and Fiat finalize their global alliance.
[Related content: stocks, investments, stock market, financial crisis, economy]
By Charley Blaine and Elizabeth Strott
Light, sweet crude oil spiked higher this morning after the Energy Information Administration said supplies fell last week.
Crude oil inventories fell by 4.4 million barrels last week, a much higher decline than the expectations of an 800,000-barrel drop. Inventories rose by 2.9 million barrels the previous week.
Crude was up 82 cents to $70.83 a barrel this morning.
On Tuesday, oil closed above $70 for the first time since Nov. 4, 2008. Oil has risen 57% this year, with a big jump recently, partly because speculators think that the global economy is starting to recover, which in turn, could boost demand for oil. The commodity's price is still less than half of the all-time high of $147.27 set on July 11, 2008.
Stocks were drifting lower this morning as concerns grew about rising interest rates and their impact on an economic recovery. At 11:20 a.m. ET, the Dow Jones Industrial Average ($INDU) was down 34 points to 8,729. The Nasdaq Composite Index ($COMPX) had lost 22 points to 1,838, and the Standard & Poor's 500 Index ($INX) had shed 4 points at 938.
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Gasoline inventories fell by 1.6 million barrels last week, and distillate stocks fell by 300,000 barrels, the EIA report said.
Other commodities were also rising today, on fresh evidence that China's economy is recovering, along with improved outlooks around the world.
Gold rose above $960 an ounce today, as investors hedged against inflation from the surge in oil prices.
"Commodity stocks look attractive because many of them have declined below their intrinsic value and we expect the global demand for commodities to continue its long-term growth," Mark Mobius of Templeton Asset Management said.
The decline in the U.S. dollar had also contributed to oil's gains. Crude prices are denominated in dollars and generally rise when the dollar declines.
"When optimism about the global economy is out there, people feel less need to hold the dollars which they have accumulated for a rainy day," Akio Yoshino, chief economist in Tokyo at Société Générale Asset Management, told Bloomberg News. "The dollar is likely to remain under pressure.
Gasoline creeps higher, too
The average price of regular gasoline rose to $2.627 today from $2.622 Tuesday, according to the AAA Fuel Gauge report. Gasoline prices had risen 41 straight days through Tuesday, gaining 27.8% over the span. The price of gasoline is still down more than 36% from its record $4.114 a gallon set on July 17, 2008.
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Rising oil means a hit on consumers' pocketbooks.
"Every time it goes higher it takes that much more money out of consumers' pockets," analyst Peter Beutel told CNNMoney.com. Beutel said that for every 10-cent increase in gasoline prices, people spend $40 million less a day on other goods and services.
10-year Treasury auction on tap
The yield on the 10-year Treasury note climbed to a seven-month high this morning ahead of today's $19 billion auction in 10-year notes.
The price of 10-year notes fell after Russia said it may move some of its reserves from Tresaurys to International Monetary Fund bonds. (Bond prices and yields move in opposite directions.) Russia holds $138.4 billion of U.S. debt. China, the biggest U.S. creditor, holds $767.9 billion in U.S. debt. The U.S. needs foreign investors like Russia and China in order to continue its massive borrowing programs. The U.S. government has been selling large amounts of debt to fund its economic stimulus programs.
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Rising yields have caused jitters about higher interest rates and mortgage rates. The Federal Reserve, in an attempt to prevent rising rates, is scheduled to buy back debt today as part of its previously announced $300 billion qualitative easing plan.
On Tuesday, the Treasury received strong demand for its $35 billion auction of 3-year notes. The yield was 1.96%, lower than expected 1.97%. There was $2.82 in bids for every $1 in notes, an indicator of strong demand, Bloomberg News said, especially from foreign investors.
