Storage Data Lifts Crude

The December contract adds 90 cents to $57.88, bouncing from a four-month low.
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Updated from 3:36 p.m. EST

Energy prices ended higher Wednesday after the government reported an unexpected drop in crude and gasoline inventories in its weekly update.

Crude for December delivery jumped 90 cents to $57.88 a barrel, its highest close in a week. On Tuesday, the contract finished at $56.98, its lowest level in four months. Meanwhile, heating oil rose than 4 cents to $1.72 a gallon Wednesday, while natural gas futures rose 77 cents to $12.33 per million British thermal units, a two-week high.

Unleaded gasoline climbed over 2 cents to $1.48 a gallon.

Most energy stocks and indices rose on the unexpected inventory report.

Exxon

(XOM) - Get Report

added 1.33% to $57.18;

Conoco

(COP) - Get Report

rose 3.12% to $64.84;

Chevon

(CVX) - Get Report

gained 2.89% to $64.70;

Valero

(VLO) - Get Report

rose 1.47% to $99.47; and

BP

(BP) - Get Report

fell 0.31% to $65.06.

The Amex Oil index rose 1.55%, while the Philadelphia Oil Service index added 2.92%.

Crude oil inventories fell 2.16 million barrels last week, while gasoline stocks dropped 952,000 barrels, the Energy Department said in its weekly storage report. Distillates, which include heating oil and diesel fuel, rose 2.53 million barrels to 123.4 million, its first climb in eight weeks.

A

Dow Jones

survey showed that analysts expected a 1.3 million-barrel rise in crude stocks, a 300,000-barrel rise in distillate stocks, and a 1.35 million-barrel rise in gasoline inventories, on average.

After a large 4.5 million-barrel increase in oil stocks during the week ended Nov. 4, some traders said inventories were due for a fall.

"Markets get into a herd mentality and start thinking that crude will build until the end of time, but it had to come down after the big build last week," said Phil Flynn, vice president and senior market analyst for Alaron Trading in Chicago. "If there's no reason for oil to build, next week you'll go into a lull."

Crude supplies -- already 11% higher than their five-year average -- were projected to rise again because of warm weather in the Northeast, where more than 80% of the heating oil is used. Oil supplies usually fall as winter approaches, but because of the warm weather, refiners have been able to add to their oil stockpiles this year.

In October, domestic petroleum deliveries fell more than 8%, compared to October 2004, as high energy prices forced Americans to cut back on fuel use, the American Petroleum Institute, which represents oil and gas companies, said in its monthly report Wednesday.

"Supply is there and will continue to build," said Kyle Cooper, vice president in futures and fixed income for Citigroup Global Markets in Houston. "Unless the weather turns really cold, refineries will be able to keep up."

A cold front is expected to arrive in the Northeast Thursday, pushing temperatures down to the 30s and 40s and bringing winds that make it feel colder. The chilly weather will stay through the weekend, according to AccuWeather.com, a State College, Pa.-based weather forecaster.

In December, AccuWeather predicted in a monthly forecast, the Northeast will be hit with a colder-than-normal winter, while most of the western U.S. will have above-normal temperatures.

Supply drops and cold weather are expected to drive oil prices higher, and may signal prices have reached their lows. Low production levels in the Gulf of Mexico, where only about 48% of oil rigs and platforms are operating, may also put a crimp in oil prices when temperatures start falling. Around 37% of the gulf's daily oil production is still offline, which amounts to 3.713 billion cubic feet per day, the Minerals Management Service said in its daily inventory report today.

"If we're seeing demand strong now, what's going to happen when cold weather arrives next week?" said Flynn. "We may have put in the bottom of the market."

But he cautioned that traders may want to test the price lows a few more times this year.

"I'm not ready to say quite yet that this is it," Flynn said.

OPEC said in its monthly oil report Wednesday that its "basket" price for the first half of November slipped to $50.01 yesterday amid falling gasoline demand and heating requirements.

"Although OPEC is completely impotent to stopping the market from going up, they can keep it from going down," said Bill O'Grady, assistant director of market analysis at A.G. Edwards in St. Louis.

OPEC won't let the price fall below $50 and will start defending oil prices, O'Grady said.

During the fourth quarter, OPEC member countries will have to produce more oil to meet higher demand than the agency previously estimated. OPEC will have to pump 30.32 million barrels of oil a day -- 276,000 barrels a day more than was previously estimated, the group said in its monthly oil report today.

OPEC expects oil demand to rise 1.8% or 1.5 million barrels a day to 84.8 million next year due to a rebound in Chinese demand and a better economic outlook for the U.S. and Pacific countries.