Oil jumps as gasoline supplies drop

NEW YORK (CNNMoney.com) -- Oil prices remained higher Wednesday after government said supplies of crude oil showed a surprise gain but gasoline stocks and refinery runs declined.

U.S. light crude for June delivery gained 1.26 to settle at $65.84 a barrel on the New York Mercantile Exchange. Oil traded up 44 cents just prior to the report's release.

In its weekly inventory report, the Energy Information Administration said crude stocks rose unexpectedly by 2.1 barrels last week. Analysts were looking for a drop of 1 million barrels, according to Reuters.

But gasoline supplies, closely watched ahead of the summer driving season and relatively low as of late, fell by 2.8 million barrels. Analysts were looking for a decline of 400,000 barrels.

EIA characterized gasoline stocks, which have fallen 13 percent since early February, as being "well below the lower end of the average range."

The gasoline situation doesn't look likely to improve soon.

The report said refineries, operating at below normal capacity over the last several weeks due to fires and other problems, ran at 87.8 percent capacity last week, down from 90.4 percent the week prior and lower than expected.

And gasoline demand remains strong. EIA said demand over the last four weeks rose by 2.3 percent. The average rate of growth is 1.5 percent.

"It's a one-two punch," said John Kilduff, an energy analyst at Man Financial in New York. "It's very troubling on the gasoline side. We just can't keep up, given the strong demand."

Distillates, used to make heating oil and diesel fuel, were unchanged. Analysts were looking for an increase of 400,000 barrels.

Crude prices have traded in a wide band for the last year, hitting an all time non-inflation adjusted trading high of $78.40 last July, then briefly falling below $50 a barrel at the start of the year.

But oil prices have rebounded and are now trading at the high end of their multi-month range of $55 to $65 a barrel, largely due to geopolitical tensions with Iran and uncertainty in the Nigerian elections.

Crude has also risen in tandem with gasoline, pushed higher as refinery problems crimped gasoline supplies ahead of the summer driving season.

In Nigeria, the ruling party won an election last weekend, but the vote was widely seen as rigged.

That sparked concern among traders that violence could worsen in the oil-rich nation, whose crude is of high quality and easily made into gasoline.

Nigeria has lost 600,000 barrels per day (bpd) in oil production since the rebel Movement for the Emancipation of the Niger Delta (MEND) attacked oilfields in the western Delta in February 2006, according to Reuters.

But Nigerian officials say oilfields pumping more than half that volume will be restarted by the end of May.

The dispute between the West and OPEC producer Iran over its nuclear program is the other main geopolitical sore spot supporting oil prices.

The European Union and Tehran are to discuss Wednesday whether the Islamic republic might be prepared to suspend nuclear activity after more sanctions were imposed, Reuters reported. Iran has vowed not to retreat despite world pressure.

Stocks of big oil companies, including BP (Charts), Exxon Mobil (Charts, Fortune 500), ConocoPhillips (Charts, Fortune 500), Chevron (Charts, Fortune 500) and Royal Dutch Shell (Charts) have rebounded along with oil prices, with the AMEX oil and gas index up about 10 percent for the year.

-Reuters contributed to this report