NEW YORK – Crude oil prices rose more than $1 Wednesday after a U.S. petroleum inventory report showed a dip in crude and distillate stocks and a sharp rise in gasoline stocks.
Crude contracts, hovering around $65 a barrel, are expected to remain high on the back of heavy winter demand for distillates such as heating oil and a slow-paced recovery of refineries in the wake of Hurricanes Rita and Katrina, which hit the Gulf Coast (search) within weeks of each other.
"Refineries are squeezing out every gallon of gasoline possible, and they're doing a good job of it. The problem is, it's coming at the expense of the other products like heating oil," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.
Light, sweet crude for November delivery rose $1.58 in midday trading to $66.65 a barrel on the New York Mercantile Exchange (search). Heating oil edged up more than 8 cents to $2.15 a gallon, while gasoline gained nearly 7 cents to $2.235 a gallon.
On London's International Petroleum Exchange, November Brent rose $1.12 to $64.09 a barrel.
Gasoline inventories (search) rose an unexpected 4.4 million barrels to 199.8 million in the week ended Sept. 23, the Department of Energy (search) said Wednesday in its weekly petroleum stocks report. Still, they remain about 6 percent below year-ago levels.
Crude inventories fell 2.4 million barrels to 305.7 million, but are about 11 percent higher than a year ago.
Distillate inventories, which include heating oil, diesel and jet fuel, fell 500,000 barrels to 133.6 million, nearly 7 percent higher than a year ago.
The Energy Department's report also said motor gasoline demand and distillate fuel demand are both about 3 percent below the same period last year, but analysts noted that demand is on its way up as the economy recovers from Katrina and Rita.
"Gasoline demand, while down from pre-Katrina levels, continues to improve," Flynn said.
Natural gas also remains a big worry because the country's ability to import liquefied natural gas is limited. Crude oil can be imported from other countries and taken from the U.S. government's emergency reserve.
Natural gas futures soared 64 cents to $13.30 per million British thermal units in midday trading.
In the storm-devastated Gulf area, about a dozen refineries in Texas and Louisiana have yet to restart after suffering damage and electricity outages from Hurricane Rita.
"The overall picture for the refineries is bleak," said Scott Meyers, senior trading analyst for New York brokerage Pioneer Futures Inc. "The unleaded gasoline and heating oil futures may continue to rise and take the crude with them."
Valero Energy Corp. said Tuesday it has restarted its Houston refinery and is working on restarting its refinery in Texas City,Texas, but its 255,000-barrel-a-day refinery in Port Arthur, Texas, will be out for two to four weeks.
Exxon Mobil Corp.'s mammoth 557,000-barrel-a-day Baytown, Texas, refinery has begun to restart, while Royal Dutch Shell PLC said its Port Arthur refinery has sustained damage.
Daily crude oil production of 1.5 million barrels in the region remains completely shut down, while natural gas production is only running at 22 percent of normal daily capacity, the U.S. federal Minerals Management Service (search) said Tuesday. The Gulf Coast produces most of the country's natural gas supplies.
The acting secretary of the Organization of Petroleum Exporting Countries (search), speaking Wednesday at a conference in Johannesburg, blamed the worldwide lack of refining capacity for soaring prices.
Adnan Shihab-Eldin said there would be no improvements to refining capacity before 2007, though there were now "encouraging signs from some of the majors on refining."