05/06/2015 11:34 EDT | Updated 05/06/2016 05:59 EDT

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

Oil prices rose to a new high for the year above $62 on Wednesday, powering the Canadian dollar above 83 cents.

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 and U.S. prices up 25 per cent.

On Wednesday, West Texas Intermediate crude, the most common North American contract, rose $1.58 to $62, up 2.5 per cent on the day.

Western Canada Select, a Canadian contract, has had an equally powerful rally and now sits at $53.44, 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.

The Canadian dollar was up three quarters of a cent to 83.59 cents US at mid-morning.

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 should have fresh data today that could confirm a reduction in the supply glut.

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, is at its high for the year of $69.13 a barrel, up $1.69 on the day.

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.