Another positive day for oil prices today follow this week's inventory report that showed larger than expected pull back in oil supplies. Analysts had been expecting to see a decline of 690,000 barrels last week, but were shocked to find that inventories actually fell by a remarkable 6.5 million barrels.

Following the release of today's report, oil shot up to a new high of $78.77 as traders worry about demand now that we are in the peak summer driving months. Gasoline inventories jumped on the week 600,000, but that was a little below the 1.1 million barrels that analysts were expecting to see.

The previous intraday high was $78.40, which we saw last July.

The main reason for the larger than expected draw in oil was increased productivity by American refineries. The report indicated that U.S. refineries were able to increase capacity to 93.6% during this week. This is good news for us at the gasoline pumps. Low refinery out put was the major factor that led to record high gasoline prices earlier this year, but the irony is that now that refineries are using more oil, oil prices are going to move higher.

After hitting a record high of $3.227 a gallon in May, prices have retreated a lot, and are currently at $2.867.

Will oil prices be able to continue to move higher and break through the psychological $80 barrier? It is going to be tough to get traders to push prices through the $80 barrier, but the way things are headed it wouldn't surprise me either.

To get a better idea of just how strong oil prices have been lately, let's close by taking a look at a current chart:


Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.