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Crude Gains 3.3% on Lower Inventories

The July delivery contract for crude rose by $2.39, or 3.3%, to settle at $74.38 a barrel after a report showed crude inventories fell by 1.8 million barrels last week.



) -- Crude oil futures settled more than 3% higher Wednesday after the government said oil inventory levels fell as expected.

Oil stockpiles dropped by 1.8 million barrels last week, the Energy Information Administration said Thursday, bringing the total supply mark to 361.4 million barrels. That fall was slightly greater than originally forecast; analysts polled by Platts had predicted that levels would fall by 1.3 million barrels.

Yet the decrease fell short of the assessment from the industry's own American Petroleum Institute, which had reported that oil inventories plunged by 4.54 million barrels for the week ending June 4.

Gasoline stocks, which had been expected to jump by 430,000 barrels, instead were mostly unchanged, according to the report. Distillate fuel supplies, on the other hand, rose by 1.8 million barrels, well beyond estimates calling for a 550,000-barrel build-up.

On the Nymex, the July delivery contract for crude was gaining $2.84 to trade at $74.83 a barrel after the report. July heating oil was advancing 5 cents to almost $2.02 a gallon, while July gasoline futures were gaining nearly 6 cents to $2.05 a gallon.

In its latest June assessment, the Organization of Petroleum Exporting Countries shaved its 2010 demand forecast for OPEC crude by 70,000 barrels a day, saying demand should average 28.77 million barrels per day.

A weaker dollar and

Federal Reserve

Chairman Ben Bernanke's reassurances that the

U.S. economy will continue to grow even after fiscal policy unwinds likely contributed to energy gains on Wednesday. The dollar was last trading 0.6% lower against a basket of foreign currencies, according to the dollar index.

The energy sector, which had been one of the day's best performers earlier in the session, took a hit alongside the broader market in the final hours of trading. The NYSE Arca Oil index lost 3.3%, and the Philadelphia Oil Service Sector index slipped 1.1%.

Exxon Mobil

(XOM) - Get Report

was the

Dow Jones Industrial Average's

second worst performer, as shares lost 2%. Meanwhile, fellow component


TST Recommends

(CVX) - Get Report

ended 0.3% lower.

Shares of

Diamond Offshore

(DO) - Get Report

recouped some of Tuesday's losses after denying reports of a leak at its Ocean Saratoga drilling rig. In a press statement, the firm said

Taylor Energy

, the operator at the well sites, was "plugging and abandoning wells damaged when a Taylor Energy production platform was toppled during Hurricane Ivan in 2004." The Interior Department said the Taylor wells are leaking under a third of a barrel of oil a day, according to a


news account, going on to say that marginal leaks are not unusual in the region. Shares of Diamond Offshore rose 0.3%.

The National Oceanic and Atmospheric Association confirmed the work of several scientists claiming the existence of

large oil plumes deep within the Gulf of Mexico, originating at the


(BP) - Get Report

rupture. A BP spokesperson attempted to scuttle the issue. But American depositary

shares of BP plummeted to a new 52-week low, losing 15.8%, to close at $29.20.

Elsewhere on the Nymex, July natural gas lost 13 cents, or 2.7%, to settle at $4.68 per million British thermal units. The EIA is expected to release its weekly natural gas storage stats Thursday morning. Analysts polled by Platts estimate the stats should show a net injection between 91 to 95 billion cubic feet.

--Written by Sung Moss and Melinda Peer in New York