Refineries come back online

NEW YORK (CNNMoney.com) -- Oil prices ended flat Wednesday, as increased refinery production balanced out a drop in gasoline and crude inventories.

U.S. front-month crude rose 3 cents to settle at $63.13 a barrel on the New York Mercantile Exchange.

Oil company stocks, represented by the AMEX oil and gas index (in yellow), generally track the price of crude oil ( in blue).

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Oil traded lower most of the day as traders focused on the refinery news.

In its weekly inventory report, the Energy Information Administration said oil and gas refineries ran at 90.4 percent capacity, up from 88.4 percent a week ago and far higher than oil analysts had expected.

Refineries had suffered a string of accidents and other unexpected shutdowns in recent weeks, which along with strong gasoline demand and a draining of winter blends had pummeled gasoline stockpiles and helped push retail prices to nearly $3 a gallon.

Traders, nervous about gasoline stockpiles ahead of the summer driving season, had been waiting for weeks to see refinery activity increase.

"The jump in runs has given some confidence to the market that gasoline supplies will be adequate for the summer," said Sal Gilbertie, an energy trader at Fimat in New York. "But even with the jump, refining capacity is still adequate at best, given the demand."

EIA's report did nothing to ease concerns that Americans have an insatiable appetite for gasoline.

EIA said gasoline demand averaged 9.4 million barrels per day over the past four weeks, up 2.5 percent from the same period last year. The average rate of demand increase is about 1.5 percent.

But the government also reported a surprise drop in oil and gasoline inventories that balanced out the refinery news.

EIA said gasoline supplies, closely watched ahead of the summer driving season, fell 2.7 million barrels, the 10th week of declines in a row. Analysts were looking for a drop of 2.1 million barrels, according to Reuters.

Crude supplies showed a surprise decline, falling by 1 million barrels, while distillates, used to make heating and diesel fuel, declined by 800,000 barrels. Analysts were looking for a 500,000-barrel gain in crude stocks and a 400,000-barrel decline in distillates.

While pump prices remain high, averaging $2.87 Wednesday and up 30 percent since the start of the year, gasoline futures have fallen in recent days, indicating prices at the pump may have topped out for now.

Earlier this week refiner Valero (Charts, Fortune 500) said its 158,000 barrel per day McKee refinery in Sunray, Texas, came back online. And Sunoco (Charts, Fortune 500) plans to bring its 90,000 barrel per day Philadelphia refinery back to full production by next week, Peter Beutel, an oil analyst at Cameron Hanover, said in a research note.

Last week EIA said nationwide average summer gasoline prices should peak at about $2.87 a gallon sometime in May, which is earlier and about 11 cents lower than the peak last year. Gasoline hit an all-time non-inflation-adjusted high of about 3.06 a barrel in 2005 following Hurricane Katrina.

Traders also weighed conflicting geopolitical news out of Nigeria.

On the one hand, prospects have grown for more gasoline-rich oil from Nigeria on news the 380,000 barrel per day Forcados oilfields could start to come back onstream as early as this month, following a year's closure owing to militant attacks, Reuters reported.

Nigerian Energy Minister Edmund Daukoru told the news agency Wednesday that Forcados would resume operations at the end of May.

Yet, the country is slated to hold presidential elections Saturday, and traders fear election-related violence could disrupt oil supplies.

Oil prices have traded in the $55 to $65 range in recent months but have swung widely over the past year. Crude hit an all-time trading high of $78.40 last July, not adjusted for inflation, then briefly fell below $50 a barrel at the start of 2007.

Oil prices and the stocks of major oil companies like Exxon Mobil (Charts, Fortune 500), BP (Charts), Chevron (Charts, Fortune 500) and ConocoPhillips (Charts, Fortune 500) are closely related, with crude prices up about 15 percent since the start of the year and the AMEX Oil and Gas Index up about 10 percent.

-- Reuters contributed to this report