Crude Oil Drops on Reassuring Inventory Data

U.S. crude oil futures dropped Wednesday after government inventory data showed a supply drop for the third week running, but within market expectations.

Light sweet crude for August slipped 95 cents to settle at $58.35 on the New York Mercantile Exchange (search). In London, Brent crude fell 92 cents at $56.58 on the International Petroleum Exchange.

In other Nymex trading, gasoline futures fell 1.49 cent to $1.6125 per gallon, while heating oil futures fell less than a penny to $1.6226 per gallon.

"The numbers are pretty much as expected," said Tim Evans, senior energy analyst at IFR Energy Services in New York.

Inventories of distillate fuels, which include heating oil and diesel, posted a slightly lower-than-expected rise, lifted heating oil futures.

Gasoline supplies were up, but below the average market forecast, limiting losses for gasoline futures.

"What we will see is a tussle of control of price action," he said, adding that if the market sells off, the latest data would reinforce the idea that there is no supply shortage.

The Energy Information Administration (search), the statistical arm of the Department of Energy (search), said domestic crude stocks declined 1.6 million barrels to 327.4 million barrels, further cutting the year-on-year surplus to 24.2 million barrels.

The average analyst forecast in a Reuters survey called for a drop of 1.7 million barrels.

Supplies fell as as crude oil imports slipped by 440,000 barrels per day to 10.2 million bpd and even as refinery runs dropped 1.9 percent to 94.8 percent of capacity.

Analysts had expected imports to decline and for runs to have slipped by just 0.1 percentage point, on average.

Gasoline stocks were up 200,000 barrels at 215.9 million barrels, increasing the surplus from a year ago to 9.2 million barrels. Analysts had expected a build on average of 400,000 barrels.

Gasoline production declined to 8.7 million bpd and imports rose to 1.1 million bpd from 1.0 million in the prior week.

Implied gasoline demand demand fell to 9.3 million bpd from 9.5 million bpd.

Distillate stocks were up 1.3 million barrels at 111.5 million, putting the surplus from a year ago at 800,000 barrels. The average forecast was for a rise of 1.7 million barrels.

Distillate production fell to 4.2 million bpd from 4.4 million bpd. Imports averaged 142,000 bpd, down from 296,000 bpd the week before.

A threatened strike by offshore workers in Norway, the world's third largest oil exporter, was averted late Tuesday when mediators forged a deal between the union and employers.

But many traders are still betting on $60 oil in the near term as concerns about shortages of refined products were more pressing than worries about overall supply.

OPEC officials have repeatedly said prices are high not because of a lack of crude but because of a lack of refining capacity.