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Oil settles above $66
Government report of a surprising drop in crude supplies sparks another round of price increases.
September 28, 2005: 4:06 PM EDT
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NEW YORK (CNN/Money) - Oil prices jumped Wednesday after a government report said crude oil stocks fell by more than expected and gasoline inventories experienced a surprising jump of more than 4 million barrels.

U.S. light, sweet crude for November delivery added $1.28 to settle at $66.35 a barrel on the New York Mercantile Exchange. Just before the Energy Information Administration released its report, the contract was up 72 cents.

Crude oil inventories fell by 2.4 million barrels last week versus a consensus forecast for a decline of 1 million barrels, according to Reuters. At 305.7 million barrels, U.S. crude oil inventories remain above the upper end of the average range for this time of year.

"The overall impression I had is that this [report] is really a snapshot that reflects conditions last Tuesday rather than as of Friday," Tim Evans, a senior energy analyst at IFR Markets, told CNN/Money. "This data does not fully reflect the arrival of Hurricane Rita."

Hurricane Rita constricted refinery activity and oil imports after the storm struck the Texas-Louisiana Gulf Coast early Saturday.

Thirteen oil refineries were shuttered due to Hurricane Rita, while four others that suffered damage when Hurricane Katrina slammed into the Gulf three weeks ago remain closed. Combined, the refineries make up about 2 million barrels per day in gasoline production.

Total motor gasoline inventories surged by 4.4 million barrels last week, putting them in the middle of the average range. Gasoline inventories were expected to fall 2.7 million barrels last week, according to a Reuters survey.

In its report, the EIA said that motor gasoline demand has fallen over the last four weeks. Demand has averaged more than 8.8 million barrels per day, or 2.8 percent lower than the same period last year.

But the EIA said the data did not reflect the full impact of Hurricane Rita on the nation's oil industry. "The full effect will be next week," said Larry Alverson, an EIA analyst.

"The rest of the market, gasoline and heating oil, is carrying crude at the moment, and the data on the crude stock draw also helped," said Mike Fitzpatrick, vice president for energy risk management at Fimat USA.

Distillate stocks fell 500,000 barrels to 133.6 million barrels, also above the average range for this time of year. The surplus over last year was 8.5 million barrels.

Refinery utilization fell 4.1 percentage points to 86.7 percent of capacity, much less than analysts had predicted.

About 25 percent of U.S. refining capacity and oil production remained out as of Tuesday, in the wake of hurricanes Katrina and Rita.

But the EIA estimates that as much as 15 percent of U.S. oil refining capacity "could be out for at least another couple of weeks," due to problems spawned by Katrina and Rita.

More than half of the 15 refineries shut along the Gulf Coast before Rita were planning to restart quickly. But two plants in Port Arthur, Texas, could be out of action for up to a month.

Also, BP (Research) is weeks away from restarting its 470,000 bpd refinery in Texas City, Texas, despite the fact it has power supply and sustained only minimal damage from Hurricane Rita, industry sources said Wednesday.

Still idle after Katrina are four large refineries in Mississippi and Louisiana.

The refinery outages amount to lost oil product production of about 1.3 million bpd for gasoline, more than 700,000 bpd for distillate fuel and nearly 400,000 bpd for jet fuel, the EIA said in its weekly review of the oil market.

All of the U.S. crude production in the Gulf of Mexico remained shut as of Wednesday because of the hurricanes.

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Should refineries delay maintenance work? Click here.

Click here for CNN/Money's special report 'Oil Crunch 2005'.

-- from staff and wire reports  Top of page

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