Oil gives up gains

NEW YORK (CNNMoney.com) -- Oil prices rose slightly Wednesday, after posting solid earlier gains, as the government reported a big drop in gasoline supplies along with a simultaneous rise in demand.

U.S. light crude for May delivery gained 12 cents to $62.01 a barrel on the New York Mercantile Exchange. Oil traded as much as 66 cents higher just after the report's release.

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In its weekly inventory report, the Energy Information Administration said gasoline stocks, closely watched ahead of the summer driving season, plunged by 5.5 million barrels. Analysts were looking for a decline of 1.4 million barrels, according to Reuters.

Gasoline futures rallied more than 2 percent and settled at a eight-month high.

Crude supplies rose by 700,000 barrels, while distillates, used to make heating oil and diesel fuel, added 100,000 barrels. Analysts were looking for a 1.5 million-barrel gain in crude supplies and a 600,000-barrel drop in distillates.

Gasoline demand numbers were also strong. EIA said Americans' appetite for gas has averaged 9.4 million barrels over the past four weeks, up from last week's report and a 2.5 percent increase from the year before. The usual annual growth in gasoline demand is about 1.5 percent.

A jump in refining activity may help keep a lid on oil's rise. EIA said refineries ran at 88.4 percent capacity, up from last week and higher than expected.

"That's a big number, and it shows the refiners are set to get back online," said Phil Flynn, a senior market analyst at Alaron Trading in Chicago. "But we're still losing ground on supply because demand is incredible."

Several unexpected refinery problems have caused production to fall below normal levels, and that has been one of the main reasons cited for rising gasoline prices, which have jumped 20 percent since the start of the year.

Traders were looking for refineries to ramp up production sometime soon, and this week's report suggests it is finally happening.

Analysts have also said that once refineries start making more gasoline, and gasoline supplies start rebounding as cleaner-burning summer gas replaces the winter mix wholesalers are currently trying to get rid of, gasoline prices should fall.

EIA predicted Tuesday that prices should peak sometime in May - and at $2.89 a gallon, 11 cents less than last year - then start falling.

However, it may be truckers who are the first to benefit because of the rise in distillate-based diesel fuel last week, EIA said.

Oil prices are now trading in the middle of their multiweek range of $55 to $65 a barrel, having eased several dollars in the past couple of days after Iran released the 15 British sailors and marines it was holding.

Oil prices, which influence the share price of big oil companies like BP (Charts), Exxon Mobil (Charts), Chevron (Charts) and ConocoPhillips (Charts), have swung widely over the past 12 months, hitting a trading high of $78.40 last July, then briefly falling below $50 a barrel at the start of 2007.

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