Oil Closes Above $66

Updated from 1:19 p.m. EDT

Energy prices closed higher Wednesday as strength in heating oil and natural gas distracted traders from a generally bearish report on U.S. fuel inventories.

Oil for November delivery closed up $1.28 to $66.35 a barrel in Nymex trading. On Tuesday, light sweet crude oil futures closed down 75 cents to $65.07 a barrel. Nymex heating oil futures rose about 3%.

"Markets are getting nervous again as restoration information comes in," said Mary Novak, managing director of energy services at Global Insight. "The good news we're hearing is being offset by some bad news on smaller but critical 'getting-the-whole-system-going' issues."

The Energy Department reported a smaller-than-expected decline in crude stocks of about 2.4 million barrels and a surprisingly large jump in gasoline stocks of 4.4 million barrels.

"The fact is, these numbers aren't that horrific," said John Person, president National Futures Advisory Service. "Gasoline stocks are rising and that should bring relief to traders. That's a huge buildup of gasoline."

October unleaded gas futures closed up 17.86 cents to $2.34. October natural gas futures closed up $1.94 to $14.60 on their last day of trading. Other natural gas contracts were also stronger.

Refinery outages have curtailed roughly 1.3 million barrels per day of gasoline production, the Energy Information Administration said, more than 700,000 barrels per day of distillate fuel production, and nearly 400,000 barrels per day of jet fuel production.

The average U.S. retail price for regular gasoline increased by 1.7 cents to about $2.80 per gallon after falling the previous two weeks, the IEA reported. This week's price is 88.6 cents higher than this time last year.

"One of things analysts are watching is how much imported gasoline is making it here," Novak said. "Parts of the country that are heavily dependent upon the Gulf will probably see higher prices and maybe even have some shortages."

Natural gas rallied after the Natural Gas Supply Association said in a statement on its Web site that "Hurricane Rita and an anticipated increase in heating demand are expected to stretch natural gas supplies even further, likely resulting in higher wholesale costs this winter."

The association doesn't forecast natural gas prices at the wholesale or retail levels, but based on available data its analysis points to "upward market pressure compared to last heating season."