Crude Pushes Toward $64

Updated from 11:06 a.m. EST

Oil futures jumped to a 14-week high Wednesday after crude stockpiles fell more than expected last week in a government report.

Light, sweet crude for February delivery gained 26 cents to settle at $63.72 a barrel on Nymex. After the inventory figures were released, oil prices hit a high of $64.15 and then retreated after the report showed that refiners boosted production while gasoline and distillate stockpiles rose.

Wholesale unleaded gasoline lost 2 cents to $1.67 a gallon.

Last week, crude stockpiles plunged by 6.3 million barrels as imports fell and production of gasoline and distillates rose. The drop, the fourth straight, was much larger than the 2.25-million-barrel decline analysts polled by Bloomberg had expected. Still, at 329.1 million barrels, supplies are now about 2% higher than last year, according to the U.S. Energy Administration's weekly supply tally released earlier this morning.

Refiners, which process crude into fuels such as heating oil and gasoline, have finished their seasonal maintenance and increased their run rates in anticipation of the winter heating season. Heavy fog shrouded three shipping channels in Louisiana and Texas for five days and prevented tankers from offloading crude imports at refineries there.

However, refiners were able to increase their run rates overall to 90.7%, up from 89.1% the previous week, to produce more gasoline and distillates, which include fuels such as jet fuel, diesel and heating oil. Last week, gasoline supplies climbed by 1 million barrels, and distillates shot up by 1.2 million barrels.

The increase in distillates stunned analysts, who had been expecting a drop of 500,000 barrels, because they assumed colder weather and the closure of Texas and Louisiana shipping channels would shave production.

Gasoline stockpiles are currently about 3% below last year, and distillates are 1.2% less than last year.

"The weather delays are not unusual on the Gulf Coast this time of the year, but they come right as OPEC is trying to extract 1.2 million barrels per day of production and prepares to deepen it another 500,000 barrels per day from February," writes Michael Fitzpatrick, an energy analyst at Fimat USA in New York.

In the Northeast, the country's largest user of heating oil, warm weather crimped natural gas and heating oil prices. Natural gas, which is used by some utilities and businesses to generate electricity, tumbled 31 cents to a nine-week low of $6.76 per million British thermal units. Heating oil rose 1 cent to $1.73 a gallon.

Natural gas inventories are expected to dip by 73 billion cubic feet in the Energy Department's weekly update due out Thursday morning, according to a Bloomberg survey. The drop isn't that significant because the average decline over the past five years has been 120 billion cubic feet.

Mild weather has reduced heating demand and boosted inventories 8% above last year and 7% higher than the five-year average. Supplies will likely remain high through the end of 2006.

Shares of drilling, exploration and refining companies were down 1% on the Amex Oil Index, which tracks 13 such companies. Valero Energy(VLO Quote), Marathon Oil(MRO Quote) and BP(BP Quote) were falling the most, down at least 1.3% each.

Exxon Mobil(XOM Quote), the country's biggest publicly traded energy company, was giving back 1% to $76.24.