NEW YORK (AP) — The price of oil rose nearly 2 percent Wednesday as the U.S. government reported another steep decline in the nation's supplies of oil and gasoline.
By late morning, benchmark crude for August delivery was up $1.94, or 1.9 percent, to $105.47 a barrel on the New York Mercantile Exchange.
Oil has risen about $12 a barrel, or 13 percent, in the past two weeks to the highest level since early May of last year. The initial catalyst was turmoil in Egypt. The country controls the Suez Canal, a critical channel for oil and gas shipments from the Middle East. But now oil is rising on signs of increased demand in the U.S., the largest consumer of oil and gasoline.
Rising oil prices have reversed a steady decline in the price U.S. drivers pay at the pump. The average price for a gallon of gas rose 2 cents to $3.50. That's the biggest one-day increase since May 18. The price is still 14 cents cheaper than a month ago.
The government reported that crude supplies declined by 9.9 million barrels in the week ended July 5, more than twice the decline expected by analysts. Gasoline supplies were expected to rise, but instead fell by 2.6 million barrels.
In the past two weeks, oil supplies have dropped 20.2 million barrels, while gasoline supplies have fallen 4.3 million barrels.
At 373.9 million barrels, the nation's oil supplies are 1.1 percent below year-ago levels, the Energy Department's Energy Information Administration said in its weekly report.
The drop in supplies suggests stronger demand and underlines the signs of economic recovery shown in last week's stronger-than-expected U.S. hiring report.
A report from The Organization of Petroleum Exporting Countries forecasting rising global demand in 2014 also helped boost prices. The Vienna-based group said it expected additional global demand to reach 1 million barrels a day next year, compared to an annual increase of around 800,000 barrels a day in 2013.
Oil prices were also supported by a weaker dollar — which makes crude cheaper for traders using other currencies — and the political crisis in Egypt. While Egypt is not an oil producer, it controls the Suez Canal, a critical channel for oil and gas shipments from the Middle East.
Brent crude, which is used to set prices for oil used by many U.S. refineries, was up 34 cents to $107.41 on the ICE Exchange in London.
In other energy futures trading on the New York Mercantile Exchange:
— Wholesale gasoline added 4 cents to $2.97 a gallon.
— Natural gas climbed 1 cent to $3.67 per 1,000 cubic feet.
— Heating oil was up 1 cent at $2.99 per gallon.
Pablo Gorondi in Budapest contributed to this report.