Oil tumbles on big jump in inventories

NEW YORK (CNNMoney.com) -- Oil prices sank more than $1 Wednesday after a government report said supplies of crude and gasoline jumped more than Wall Street had expected.

U.S. crude for July delivery sank 91 cents to $68.19 a barrel on the New York Mercantile Exchange. Oil had traded down 21 cents just prior to the report's release.

In its weekly inventory report, the federal government's Energy Information Administration said crude stocks jumped 6.9 million barrels versus analysts' forecasts for only a small change.

"Crude was much higher than expected. That was kind of a shock and the market is trading on the shock right now," said Phil Flynn, a Chicago-based senior market analyst at Alaron Trading.

Gasoline supplies, closely watched in the summer driving season, climbed 1.8 million barrels last week. Analysts were looking for a 1-million-barrel rise, according to Reuters.

Distillates, used to make heating oil and diesel fuel, also rose by 100,000 barrels, but was less than the 800,000-barrel increase analysts expected.

A decline in refinery activity also supported prices. EIA said refineries ran at 87.6 percent capacity, down from last week's 89.6 percent.

The report comes as traders have been focused on whether struggling U.S. refiners could lift supplies of gasoline during the peak summer demand season, while also reviving low heating fuels stocks, Reuters reported.

"We are swimming in crude right now and the real problem is that were are not swimming in enough gasoline," Flynn said. "Refineries are also having a hard time, which means we could see higher gasoline prices."

Energy Secretary Samuel Bodman said he's confident refining activity will jump back above 90 percent shortly. He said emergency federal provisions to spur that, like relaxing environmental standards, were probably not needed.

"There's reason to believe some of these refineries will come back online," said Bodman, speaking to reporters at a renewable energy finance conference in New York. "They have enormous incentive to do it," he said, alluding to the high profits currently enjoyed by the refining industry.