Oil moves off highs on inventory report

NEW YORK (CNNMoney.com) -- Oil prices moved off their highs Thursday after the government reported a big rise in refining activity and a gain in the raw material for making heating fuel.

U.S. light crude for October delivery rose 47 cents to $76.20 a barrel on the New York Mercantile Exchange. Oil had traded up $1.36 just prior to the report's release.

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In its weekly inventory report, the Energy Information Administration said refiners operated at 92.1 percent capacity, up from 90.3 percent last week and higher than projections.

Corresponding to the bump in refining activity, distillates rose by 2.3 million barrels. Analysts were looking for a gain of just 100,000 barrels, according to a Dow Jones poll. Distillates, used to make heating and diesel fuel, are watched more closely as winter approaches.

Still, one analyst said to expect the ease in prices to be short-lived.

"The next several reports are likely to be bullish," said Peter Beutel, an oil analyst at the consultants Cameron Hanover. "The draws in gasoline aren't going to diminish" as refineries switch from making gas to heating fuel.

Gasoline inventories dropped by 1.5 million barrels, slightly more than the 1.1 million decline predicted.

Crude stocks fell by 3.9 million barrels last week. Analysts were looking for a drop of 1.1 million barrels.

But both crude and distillate supplies remain above average for this time of year, EIA said, although gasoline inventories are well below normal.

Oil prices hit a record trading high of $78.77 on Aug. 1, then pulled back as trouble in the subprime mortgage sector raised fears of stalling economic growth, which would crimp the demand for crude.

But over the last week oil prices have again moved within striking distance of a new record as subprime fears subsided and a string of powerful storms threatened the oil-rich Gulf of Mexico.

On Thursday, retailers reported sales in August that generally beat expectations, easing concerns over an economic slowdown. A report on second quarter productivity also came in higher than expected, while jobless claims dropped sharply.

The Organization of Petroleum Exporting Countries meets next week, although an increase in production is not expected. Several OPEC ministers have said recently the high oil and gas prices are the result of refining bottlenecks, not an overall shortage of crude.