NEW YORK (CNN/Money) -
Oil prices soared Wednesday in the wake of a weaker-than-expected crude inventory report and news that OPEC raised its output ceiling in an attempt to cool prices.
U.S. July light sweet crude was up $1.30 at $56.30 a barrel on the New York Stock Exchange. The contract was trading at $55.70 just before the report was released and reached a high at $56.70 after the report.
Crude inventories dropped by 1.8 million barrels to 329 million barrels for the week ended June 10, the EIA said. Analysts polled by Reuters expected crude stocks to slip by 400,000 barrels.
The report added that U.S. crude oil inventories remain well above the upper end of the average range for this time of year.
Meanwhile, distillate inventories jumped by 2.5 million barrels last week, said the EIA, versus a forecasted 1.2 million barrel gain. But the government said distillates remain in the lower half of the average range for this time of year.
Fears of heating oil and diesel fuel shortages have helped bolster crude prices and distillate fuel demand has averaged 4.1 million barrels per day, 6.5 percent above the same period last year, over the last four weeks, the EIA said.
"The market has been bullish on distillates, and refiners are maxing out distillate production to get in on this," said Phil Flynn, an energy analyst at Alaron Trading.
"But the problem is that this will come at the expense of other fuels, like gasoline," Flynn said.
Refineries operated at 96.7 percent of their operable capacity last week; and although refinery inputs increased significantly, gasoline production still declined.
Gasoline inventories fell by 900,000 barrels, the EIA said, versus Reuters' forecast for a 600,000 barrel rise, with the U.S. summer driving season in full swing.
Gasoline supplies are in the upper half of the average range, the report said, but motor gasoline demand has averaged nearly 9.5 million barrels per day, or 3.0 percent above the same period last year, over the last four weeks.
OPEC raises output
Earlier, the Organization of the Petroleum Exporting Countries (OPEC) lifted its output limits by a half a million barrels to 28 million barrels a day as of July 1, adding that another 500,000 barrel increase may be on line for later in the year if prices do not fall.
"I think we are continuing with our protection of the market," OPEC President Sheik Ahmed Fahd Al Ahmed Al Sabah said. "There is enough supply in the market. We are confident we can reach the fourth quarter with enough supply."
"We don't think there will be a shortage," he said. "Whenever the prices go high, people say, `Where is OPEC? Where is OPEC?' We have to do our job."
But some analysts said the move made at the cartel's meeting in Vienna was symbolic, since the group is already exceeding the higher quota, and that supply fears would linger.
Heavy oil demand in China is a major factor behind the high prices, Al Sabah said, adding that he planned to visit Beijing in September.
Read our special report -- "Oil Crunch 2005."