Oil rises on sharp supply decline

NEW YORK (CNNMoney.com) -- Oil prices rose Wednesday after the government said supplies of crude oil rose but reported a big drop in gasoline and distillate stocks.

U.S. light crude for December delivery gained 48 cents to $58.76 a barrel on the New York Mercantile Exchange.

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In its weekly inventory report, the Energy Information Administration said crude stocks rose by 1.3 million barrels last week. Analysts were looking for a gain of 300,000 barrels, according to Reuters.

Distillates, used to make heating oil and diesel fuel, fell by 3.6 million barrels while gasoline supplies dwindled by 3.7 million barrels. Analysts were looking for a 400,000 barrel drop in distillates supplies and a 100,000 decline in gasoline stockpiles.

The drop in gasoline and distillate - both refined products - was the result of refineries operating at a lower capacity compared to last week.

"They're just not processing it," said John Kilduff, an energy analyst at Fimat in New York. "I think the operating environment is lending itself towards maintenance."

By operating environment, Kilduff meant prices.

Oil prices have fallen nearly 25 percent from a trading high of $78.40 reached in July.

Concerns over a slowing economy, an easing of tensions in the Middle East and a hurricane season that never materialized were some of the original reasons for crude's decline, followed by a bail out of big money investment funds that further depressed prices.

However, the slide has been stemmed. Crude has been hovering around $60 a barrel for the last several weeks as OPEC talks of a production cut and the general supply and demand situation remains tight - crude is three times more expensive now than it was at the start of 2002.

Most traders expect prices to rise again come winter, when demand for heating fuels picks up, but so far warm weather in the U.S. has done little to provide support.

Traders are also watching inventory numbers to see if OPEC sticks to its plan of cutting 1.2 million barrels a day, which one EIA official said partially began before OPEC's announcement in early October.

Analysts have said OPEC often talks tough in an attempt to boost prices, but has difficulties getting its members to fall in line.

EIA noted that crude imports declined by 400,000 barrels last week, and Kilduff attributed the build in overall crude stocks to the refinery slowdown.

"If they ramped up production you'd see [crude stocks] come down," he said, although he remained doubtful about OPEC ability to significantly cut production.

Shares in big oil companies, including ExxonMobil (Charts), BP (Charts), ConocoPhillips (Charts) and Chevron (Charts), initially mirrored crude's price decline during August and early September, but have recently rebounded.

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