Oil pulls off highs on firm crude inventory

NEW YORK (CNNMoney.com) -- Oil prices retreated from near $60 a barrel Wednesday after swelling crude inventories balanced out a steep decline in gasoline stocks.

U.S. light crude for May delivery rose 36 cents to settle at $59.61 a barrel on the New York Mercantile Exchange. Oil had traded 58 cents higher than the opening at $59.83 just prior to the report's release.

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The April crude contract expired Tuesday, settling below $57 a barrel.

In its weekly inventory report, the Energy Information Administration said crude stocks ballooned by 4 million barrels last week. Analysts were looking for a gain of 800,000 barrels, according to Reuters.

But gasoline supplies, closely watched ahead of the summer driving season, fell by 3.4 million barrels, twice as much as expected.

Distillates, used to make heating oil and diesel fuel, fell by 1.7 million barrels. Analysts were looking for a 1.3 million-barrel decline.

"The tug of war continues," said Phil Flynn, senior market analyst at Alaron Trading in Chicago.

But Flynn noted the big drop in gasoline stocks, along with continued to strong demand, to make the case for higher oil prices in the near term.

"I'm surprised by the reluctance of crude to move higher," he said.

All three products are at above-average levels for this time of year, the report said.

Oil prices, which have swung from a high in excess of $78 a barrel last July to just beneath $50 a barrel in January, are now trading near the midpoint of their multimonth range of $57 to $63.

Refinery output helped keep a lid on prices Wednesday.

EIA said refineries operated at 86.3 percent of their capacity, up from 85.6 percent the previous week and slightly higher than analysts expected.

Lagging refinery output was a support for crude prices over the past couple of weeks and was the main reason cited for surging gasoline prices.

The April contract for crude closed at the low end of oil's recent range Tuesday, pushed down over recent weeks as volatile stock markets raised concerns over economic growth and OPEC's decision to leave production unchanged.

But gasoline prices have surged over the same time period, trading at a much higher premium to oil prices than normal.

Earlier this week oil prices hit a six-week low, but the front-month contract for gasoline reached a seven-month high on NYMEX.

Analysts had blamed the rise in gas prices on a longer than usual maintenance season and a series of outages at the nation's refineries, along with trouble shipping ethanol as refiners switch to cleaner-burning summer blends.

Oil prices are about 10 percent lower compared to this time last year. The AMEX oil index, which includes BP (Charts), Exxon Mobil (Charts), ConocoPhillips (Charts), Chevron (Charts) and Royal Dutch Shell (Charts), is up about 10 percent over the same time.

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