Meanwhile, gasoline inventories rose 2.3 million barrels and distillate stocks fell 2.5 million barrels.

Refineries operated at 86.4% of their operable capacity last week, up from 85.2% a week earlier.

Oil as inflation hedge

Independent energy trader Jim Dietz told BloggingStocks Wednesday the oil market is currently being driven by investor sentiment and consumer price events more than by demand.

"We have hedge funds and investment funds piling into the energy market now because they believe oil is an inflation-hedge. The dollar's decline is also helping to prop up oil," Dietz said. "No one can really tell how long this will last. As I said earlier, rising inventories call for oil to drop, but don't tell that to the market. The market is looking right past that, right now." Dietz added that he is long oil with a daily trade, and long gasoline with a monthly trade.

Dietz said there's also growing concern among traders that commodity prices will outperform selected other asset classes, and exchanges, including selected stock markets, in 2008.

"Over the last couple of weeks there's been a great deal of discussion and data that suggests if you're strategically positioned in oil, copper, wheat, soybeans, corn and other commodities, you're going to see double-digit gains in 2008, so we're seeing some new long-term players come into the market, and that's supporting prices as well,' Dietz said. "I agree with all of that, except regarding oil, which I still see pulling back to about $80 this year. But emerging market growth suggests the other commodities will continue to very well this year."