Oil soars on supply drop - April crude rises sharply after government data shows crude and gasoline supplies fell last week.

money.cnn.com March 12, 2003: 4:54 PM EST

NEW YORK (Reuters) - Oil prices rose sharply Wednesday after weekly government and industry inventory data showed U.S. crude and gasoline supplies fell last week, as war with Iraq loomed.

Around 2:45 p.m. ET, light crude oil for April delivery was up $1.11 at $37.83 a barrel on the New York Mercantile Exchange. Oil prices set a record high of $41.15 a barrel during the 1990-91 Gulf crisis.

Earlier in London, April Brent crude rose 62 cents to $33.91 a barrel.

U.S. crude oil stocks fell 3.8 million barrels in the week to March 7, the U.S. Energy Information Administration (EIA) said in its weekly report released at 10:30 a.m. ET.

Distillate stocks were up 1.8 million barrels, and gasoline inventories fell 4.1 million barrels, the EIA said.

The industry group American Petroleum Institute (API) said crude stocks fell 1.7 million barrels, distillate stocks dipped 129,000 barrels and gasoline stocks dropped 4.88 million barrels.

Analysts polled by Reuters expected U.S. crude stocks for the week to March 7 to have risen by about a million barrels while they expected gasoline stocks to have declined 1.7 million barrels. Distillates were forecast to have dwindled by 2.0 million barrels.

"Imports were down and makes dubious Venezuela's claims of a return to output normalcy," said John Kilduff, senior vice president and analyst for Fimat USA. "There was some relief on the distillate side."

Crude imports were down 1.06 million barrels, and product imports were off 652,000 barrels in the week to last Friday, according to the DOE report. API also said that imports of crude oil and refined products fell last week.

Heating oil for April delivery was 0.5 cents higher at $1.0352 a gallon, while gasoline for April delivery was 1.52 cents higher at $1.1139 a gallon, after ending overnight trade down 0.77 cent. Click here to go to CNN/Money's commodity page

The bullish gasoline and crude statistics were pushing prices up after Tuesday's losses on forecasts for warm weather, traders said.

Prices also fell Tuesday after OPEC ministers meeting in Vienna decided to keep the cartel production stable while pledging to ramp up production to meet any supply disruption.

Market jitters over a possible war in Iraq remained, though a possible extension of the deadline for Iraq to comply with U.N. disarmament demands was creating more uncertainty.

Britain said Wednesday that Iraqi President Saddam Hussein must declare on television that he will give up hidden weapons of mass destruction as one of six conditions to avoid war.

Foreign Office minister Mike O'Brien said the conditions, which Britain wants to attach to a draft second resolution on Iraq, were being discussed with fellow U.N. Security Council members as negotiations reached an end game. Related stories U.S. ready to release oil reserves Gas prices near record high Oil prices retreat

Spare OPEC oil production capacity has been squeezed to just half the volume of Iraq's exports ahead of the possible conflict interrupting exports, the International Energy Agency (IEA) said Wednesday.

In its monthly Oil Market Report, the IEA said that output increases in the past two months had left effective spare capacity in OPEC now of just 900,000 barrels per day.

Iraqi exports have been running at 1.7 million barrels a day over the past month and, in addition, Kuwait has said it may need to suspend as much as 700,000 barrels per day as a safety precaution if war breaks out in its neighbor.