Oil turns higher despite gas swell
Inventories, running low all year, jump by 3.5 million barrels, but drop in refining activity, flat crude stocks and Persian Gulf cyclone keep prices higher.
NEW YORK (CNNMoney.com) -- Oil prices turned higher Wednesday, shrugging off swelling gasoline supplies and instead focusing on a drop in refinery activity, flat crude stocks and a cyclone bearing down on the Persian Gulf.
U.S. light crude for July delivery rose 29 cents to settle at $65.90 a barrel on the New York Mercantile Exchange. Oil initially fell after the government reported the rising gasoline stocks.
In its weekly inventory report, the Energy Information Administration said gasoline supplies, closely watched in the summer driving season and running low all year, ballooned by 3.5 million barrels last week. Analysts were looking for a gain of 1.4 million barrels, according to Reuters.
Crude stocks rose by 100,000 barrels, while distillates, used to make heating oil and diesel fuel, increased by 1.9 million barrels. Analysts were looking for a gain of 300,000 barrels of crude and an 800,000-barrel rise in distillates.
But a decline in refinery activity supported prices. EIA said refineries ran at 89.6 percent capacity, a surprise drop from last week's 91.1 percent.
The average nationwide retail price for gasoline, as measured by the motorist organization AAA, hit a record high of $3.227 a gallon two weeks ago as a string of refinery problems throughout the winter helped push gasoline supplies to lows not seen in years.
But over the past few weeks, refineries have begun to come back online and gasoline stocks have grown, although they still remain well below normal for this time of year. Gas stood at $3.14 a gallon nationwide Wednesday.
Also in focus: Cyclone Gonu, churning past the mouth of the Persian Gulf.
Reuters said the cyclone, the strongest storm to reach Oman in 30 years, disrupted the country's crude exports of 650,000 barrels per day (bpd) for a second straight day - adding to supply worries that have underpinned the market.
It weakened on Wednesday to the equivalent of a Category One hurricane, from a maximum-force Category Five, en route to the Strait of Hormuz, a major Gulf oil export route, and then toward southeastern Iran.
The cyclone is expected to have a bigger impact on shipping in the Gulf rather than on Iran's oil facilities, which are concentrated inland and away from the storm's projected track.
An Iranian oil official told Reuters crude shipments of 2.4 million bpd from OPEC's second-biggest producer were not expected to be affected.
"We doubt the few days of export delays caused by the storm will, in the end, contribute much to the upside or create measurable disruptions to the system," Edward Meir of Man Financial Energy Group told the news agency.
Crude oil prices have risen over the past couple of weeks as tensions with Iran over its nuclear program increased and violence hit Nigeria in the wake of its presidential elections.
U.S. crude is now at the high end of its $55 to $65 range, where it has traded for the better part of a year after hitting an all-time trading high of $78.40 last summer.
The AMEX oil index, which includes stocks of big oil companies like BP (Charts), Exxon Mobil (Charts, Fortune 500), ConocoPhillips (Charts, Fortune 500), Chevron (Charts, Fortune 500) and Royal Dutch Shell (Charts), is up about 5 percent this year.