The Energy Information Agency reported this morning that crude oil inventories fell by 6.5 million barrels last week. Analysts had forecast a drop of 700,000 barrels, according to a Reuters poll.

Distillates, used to make heating oil, jet fuel, and diesel fuel, rose by 2.8 million barrels while gasoline supplies gained by 600,000 barrels. Analysts were looking for a 1.4 million barrel build in distillates supplies and a 500,000 barrel increase in gasoline stockpiles.

The big drop in crude inventories caused oil to break its previous all-time record trading high of $78.40, hit last July following Israel’s invasion of Lebanon and fears the conflict could spread to the broader Middle East.

As of this posting, crude is cruising along at 78.45/barrel.

If you are a studious follower of the crude oil/jet fuel game, there is good news and bad news in this release this morning. One, it’s clear refineries are continuing to crank out more production. This is why we have seen the crack spread continue to fall over the last month, and why, for the most part, jet fuel prices have held relatively steady while oil prices have continued to rise.

Fine for now.

But we could start to see jet fuel prices begin to rise again, as refineries begin to shift over to more heating oil production (in anticipation of winter heating season), and crude oil prices remain high.

And then there is the hurricane factor.

We haven’t had one form yet — but it looks like things are finally beginning to get interesting off the coast of Africa. Meanwhile, tropical storm Chantal, which formed this week out in the Atlantic off New England, continues to churn her way up off the coast of Newfoundland.

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