Oil slips despite surprise inventory drop

NEW YORK (CNNMoney.com) -- Oil prices slipped Wednesday despite a government report showing gasoline and crude supplies posting a surprise decline.

U.S. light crude for January delivery fell 24 cents to settle at $62.19 a barrel on the New York Mercantile Exchange. Oil had traded down 18 cents just prior to the report's release.

U.S. light crude on NYMEX

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In its weekly inventory report, the Energy Information Administration said crude stocks fell by 1.1 million barrels last week. Analysts were looking for a gain of 200,000 barrels, according to Reuters.

Gasoline supplies also showed a surprise decline. EIA said gasoline stocks fell by 1.1 million barrels, compared to the 300,000 build predicted by analysts.

Distillates, used to make heating oil and diesel fuel, fell by 400,000 barrels, roughly in line with estimates.

EIA reported a boost in refinery activity. It said refineries operated at 90.5 percent capacity, up more than 2 percent from the previous week.

Still, the agency said that, while supplies of crude oil remain above average, distillates are at normal levels and gasoline stocks are below average for this time of year.

"Supplies continue to sink away," said Phil Flynn, a market analyst at Alaron Trading in Chicago. "It's a little disturbing, considering the fact that we're going into winter."

Oil has been trading in a narrow band between $56 and $62 for the past several weeks.

Last week crude pushed past the range into $63 territory as OPEC talked of another production cut, forecasts called for cold weather and the dollar, in which oil is priced globally, plunged.

Prices have eased slightly this week as the weather forecast calls for warmer temperatures in the northeastern United States, the world's biggest heating oil market, and the dollar has managed to regain some ground.

OPEC's possible production cut is still supporting prices. The cartel meets Dec. 14 in Nigeria, and several members have said another cut is in order. A further reduction would add to the 1.2 million barrels per day OPEC pledged to take off the market last month.

Some reports say OPEC, which has long struggled to get its members to follow its directives, has been successful in cutting production by at least that amount, while others say the cartel has achieved just slightly more than half its targeted reduction.

While many OPEC members clamor for a further trimming, Saudi Arabia, OPEC's largest and most influential member, has been fairly quiet on the issue, although it did say last week it thought oversupply was still a problem.

Oil prices have fallen around 20 percent from highs reached in July.

But stocks of oil majors, including BP (Charts), ExxonMobil (Charts), ConocoPhillips (Charts), Chevron (Charts) and Royal Dutch Shell (Charts), have stopped mirroring crude prices and have rebounded since mid-September. Traders have been betting that oil prices will rise and thus are searching for deals in a sector many see as undervalued.

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