Updated form 1:14 p.m. EDT
Crude prices fell Wednesday after a government inventory report showed another decrease in oil stocks and a smaller-than-expected increase in distillate fuels.
The August crude contract, which became the front-month future at the close of trading Tuesday, ended down 95 cents at $58.09 a barrel on Nymex. The July contract reached a record high of $59.37 a barrel earlier this week. Gasoline futures fell 1 cent to $1.61 a gallon.
The Energy Department inventory report for the week ended June 17 showed another draw in crude inventories of 1.6 million barrels, about what analysts expected. Distillates, however, which include heating oil, diesel and jet fuel, rose for the fifth consecutive week, this time by 1.3 million barrels, which was somewhat below expectations. Gasoline stock rose by 200,000 barrels, roughly in line with estimates.
Refineries lowered their utilization rates to 94.8%, leading to a 300,000-barrel decline in diesel stocks. Heating oil rose by 1.8 million barrels.
Concerns over insufficient diesel supplies to meet growing demand helped fuel the recent rally in crude. Demand for distillates fuel was up 6.9% over the same time a year ago at 4.1 million barrels a day.
"Demand numbers are surprising, they seem too high," says James Williams, who manages WTRG Economics, an oil and gas consultancy firm. "It looks like a storage build-up rather than actual consumption."
Williams says 7% demand growth for distillates is probably a sign that local heating oil distributors, which anticipate higher prices, are stocking up ahead of the winter. "It's a storage build-up on the part of users, which means that for the longer term, winter inventories might be in better shape than what people think."
Williams expects prices to ease significantly by the end of the third quarter, "once everyone sees that we have enough winter supplies."
Despite U.S. oil inventories being at their highest levels in six years, and the Strategic Petroleum Reserve being nearly full, crude prices remain at record highs.
Many analysts who cover the energy markets are baffled by the persistence of high prices, with many recently being compelled to change their long-term outlooks to reflect higher oil prices.
In a newsletter, Pritchard Capital reported that Lee Raymond,
chief executive, warned against accepting a new "energy paradigm" or a new "oil era," even though, he said, the current cycle of high prices might take a few years to subside. Raymond spoke at the
"You need to be very careful about new paradigms," Raymond said. "After all, this is a commodity ... things take a long time to play out. They don't play out quickly."
Oil prices rose 40% since January, and are trading more than $15 higher than they were the same time a year ago.
"I don't think that oil prices will drop below $50 until the end of the year," Algerian Oil Minister Chakib Khelil told Algeria's state radio,
reported. He cited strong global demand and the lack of refining capacity.
In corporate news,
, which provides offshore drilling services, said Wednesday it reached a $985 million deal with
, the Brazilian oil company also known as Petrobras, to contract five of its deepwater rigs.
The company said in a statement that the expected revenue from the deal excludes revenues for mobilization, demobilization, performance bonus opportunities and client reimbursables. After increasing earlier, shares of Transocean rose $1.02, or 1.9%, to $55.80.
said on Tuesday that it renewed a service agreement with the U.S. Army worth about $1.25 billion over five years. Under the agreement Halliburton will continue to provide logistics support to forces in the Balkans region. Shares jumped $1.23, or 2.66%, to $47.39.
fell after it reported it drilled a dry well at a cost of $5 million.
Shares of major oil producers were mixed in early Wednesday trading. Exxon Mobil rose 0.62%;
added 0.19%; and