Oil hits $106 as U.S. fuel supplies fall

By Rebekah Kebede

NEW YORK (Reuters) - Oil climbed over $106 a barrel on Wednesday after a U.S. government report showed larger-than-expected drops in fuel stocks and declining fuel production in the world's top oil consumer.

U.S. crude oil futures hit a session high of $106.20 and settled at $105.90 a barrel, a $4.68 gain for the day. London Brent added $3.39, settling at $103.99.

Crude oil hit its record high of $111.80 on March 17.

"Today's numbers are a nice bullish surprise and come on a day when the other commodities are picking up as well," said Mike Zarembski, analyst at optionsXpress in Chicago.

Gasoline inventories fell by 3.3 million barrels as U.S. refiners slowed production to the lowest levels since October 2005, when several refineries were knocked offline by hurricanes Katrina and Rita, U.S. Energy Information Administration data showed.

The drop in gasoline stocks was more than triple the 800,000-barrel decline expected. Distillates dropped 2.2 million barrels, also more than forecast.

Crude oil inventories were unchanged last week, which bucked expectations for an increase of 1.7 million barrels.

"Lower-than-expected imports for crude, coupled with a major drop-off in refinery runs, driven by weak crack spreads and maintenance, were the catalyst for lower builds for crude and a much bigger-than-expected drop in gasoline inventories," said Chris Jarvis, senior analyst at Caprock Risk Management in Hampton Falls, New Hampshire.