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Oil soars above $62, lifting the loonie to 83 cents

Oil prices rose to a new high for the year above $62 on Wednesday morning before slipping back later in the day.

Supply glut for crude is easing as U.S. producers pull back

Natural gas flares are seen at an oil pump site outside of Williston, North Dakota. As U.S. production slows, oil prices are enjoying a rally. (Shannon Stapleton/Reuters)

Oil prices rose to a new high for the year above $62 on Wednesday morning before slipping back later in the day.

That helped power the Canadian dollar up three quarters of a per cent to above 83 cents. It closed at 83.03.

Oil has been on a month-long rally amid signs that U.S. shale production is slowing. April saw international oil prices up 20 per cent and U.S. prices up 25 per cent.

At the close on Wednesday, West Texas Intermediate crude, the most common North American contract, was up 53 cents at $60.93.

Western Canada Select, a Canadian contract, had an even more powerful rally and now sits at $52.63, after dropping below $30 in March.

Though the prospect of higher prices should cheer the oilpatch, energy companies are having a bad day. Although Canada's energy stocks have been beaten down today by the prospect of an NDP government in Alberta, the oil-sensitive loonie gained ground on oil's rise.

On Tuesday, the American Petroleum Institute said oil inventories, which have been building for months, actually declined, with supplies in storage at Cushing, Oklahoma, down by 336,000 barrels.

The U.S. Energy Information Agency confirmed that assessment today, but delivered some bad news on gasoline inventories. It appears amount of gasoline in storage has soared by 401,000 barrels, an indication drivers are not taking to the roads more because of low fuel prices.

The risk now is that rising oil prices will encourage the U.S. producers to restart rigs they have idled as oil fell over the last eight months.

Middle East disruptions

Brent, the international contract traded in London, was at its high for the year of $69.13 a barrel, before dropping back to $67.41.

While North American oil prices are responding to the drop in U.S. production, Brent is more sensitive to disruption in the Middle East.

Conflict in Yemen continued on Wednesday after planes from a Saudi Arabia-led coalition struck overnight in a bid to end mortar attacks from Iran-allied Shi'ite Houthi rebels.

While Yemen is only a small oil producer, it sits on major shipping routes and any conflict involving its neighbour Saudi Arabia, the world's leading oil exporter, shakes the market.

Exports from Libya have also been disrupted by conflict that affects its ports and oil producing areas.

With files from Reuters

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