Oil prices retreat after reaching record

NEW YORK -- Oil prices retreated after jumping to a new record Wednesday on the government's report of a steep drop in crude inventories and surge in refinery activity.

Crude prices initially rose after the Energy Department's Energy Information Administration reported that oil inventories fell by 6.5 million barrels last week, far more than expected.

However, gas futures fell on word that refiners ramped up their operations much quicker than expected. As the slide in gas futures prices accelerated, oil prices had little choice but to follow, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

"The refineries have finally gotten their act together," Flynn said. "They're back to normal, almost."

Light, sweet crude for September delivery fell $1.68 to settle at $76.53 a barrel on the New York Mercantile Exchange after rising as high as $78.77 earlier. That surpasses the previous intraday record of $78.40, set in July 2006.

As the industry rebounds from a spring and early summer in which refiners experienced an unusual number of outages, it is drawing down crude inventories that had hit 9-year highs. Some investors see that draw as a sign crude inventories are tightening.

"That's going to keep the (crude) market underpinned for now," Flynn said.

But traders also remember last summer, when oil prices plummeted by almost $20 in a little more than 2 months after hitting record highs.

"Oil does have a tendency to peak in late summer," Flynn said. "Seasonally-speaking, this bull market's on borrowed time."