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Crude oil rallied Wednesday after the Energy Department reported lower inventories than expected. December crude settled up $4.15, or 4.6%, at $94.53 -- a record-high close -- following a report that crude supplies dropped 3.9 million barrels to 312.7 million last week; analysts were expecting a build of 1.25 million. The report also said refinery capacity utilization fell 0.9% to 86.2%, surprising forecasters who predicted the number would rise by 0.5%. "The severe weakness in the capacity utilization number is shocking," said Kevin Kerr, president of Kerrtrade.com. "$96 to $100 is now not only likely but probable within seven to 14 days if not much sooner." The rally continued in overnight trading, as December crude rose to a record $96.24/barrel; futures are up 19% over the past month. Oil traders are betting on even higher prices. As of Oct. 29, traders owned call options to buy 2.52 million barrels of December crude at $125, up from 1,000 barrels on June 29. They currently hold options to buy almost 50 million barrels of $100 December crude. "A few years ago, when triple-digit oil was talked about, it was tempered by negative responses," said Mitsubishi's Anthony Nunan. "Slowly, it's becoming a reality. It's not crazy anymore, it's a reasonable target... $125 or $130 is also possible."

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Source: Crude Rallies; Traders Bet on $125 Oil (update)