Oil prices steady despite supply plunge

NEW YORK (CNNMoney.com) -- Oil prices held steady Wednesday after a government report showed supplies of crude oil posting a big but not unexpected drop and gasoline stocks making a healthy rebound.

Continued warm weather in the U.S. Northeast also kept gains in check.

Special Reportfull coverage

America's cheapest gas is in this town Summer drivers to get a break on gas Why gas prices are likely to keep climbing You'll pay a little less for gas this summer Expect relief from record February gas prices Why gas prices are rising

U.S. light crude for January delivery rose 21 cents to $60.55 a barrel on the New York Mercantile Exchange. Oil traded 16 cents higher just prior to the report's release, but has been see-sawing in light trading.

In its weekly inventory report, the Energy Information Administration said crude stocks sank by 8.1 million barrels last week. Analysts were looking for a drop of 1.8 million barrels, according to Reuters.

Distillates, used to make heating oil and diesel fuel, rose by 500,000 barrels, while gasoline supplies gained by 3 million barrels. Analysts were looking for a 400,000 barrel build in distillates supplies and a 700,000 barrel gain in gasoline stockpiles.

The big decline in crude stocks, while far more than analyst estimates, was not entirely unexpected.

Last week a thick bank of fog settled over Houston shipping channels, preventing oil delivery to some of the country's biggest refiners.

Reuters warned that its estimates could be widely off base, as it was impossible to judge when the shipments would finally land.

Last week's report showed crude inventories plummeting by over 4 million barrels as a result of the heavy fog.

But traders have taken the big drawdown in stride, believing it to be just temporary.

"If this trend continues, look for a rebound," said John Kilduff, an energy analyst at Fimat in New York. "But right now the market is just taking it with a grain of salt."

Kilduff also said it's hard to find buyers for crude right now because of a tax assessed at the end of the year on oil.

Weather is another factor.

Oil prices have fallen fairly steadily, losing nearly 6 percent since last Wednesday as warm weather continues to blanket the U.S. Northeast, the world's largest heating oil market.

Weather reports show temperatures in New York running about 10 degrees above normal for the next ten days.

Oil prices have fallen over 25 percent from highs reached in July and have been range-bound near $60 for the last several weeks.

Stocks of oil majors, including BP (Charts), ExxonMobil (Charts), ConocoPhillips (Charts), Chevron (Charts) and Royal Dutch Shell (Charts), stopped mirroring crude prices in mid-September and rebounded as traders bet on rising oil prices and looked for deals in a sector many saw as undervalued.

But over the last few weeks the traditional relationship with oil stock prices tracking the cost of crude has been reestablished.

_______________

Energy's winners and losers in 2006

Exxon Valdez spill damages slashed