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New Oil Contract Debuts Higher

Crude rises 26 cents to $65.77 a barrel.

Crude futures crept higher Wednesday on the New York Mercantile Exchange, buoyed by an anticipated spike in demand as U.S. refineries build their motor gasoline inventories.

The July light sweet crude contract, which became the near-term contract after the June contract expired Tuesday, closed 26 cents higher at $65.77 a barrel.

Reformulated gasoline was unchanged at $2.31 a gallon. Heating oil rose 3 cents to $1.93 a gallon, and natural gas slid 4 cents to $7.76 per million British thermal units.

Crude oil futures managed to book gains even though the Energy Information Administration released inventory figures for the week ended May 18 that were more bearish than analysts were expecting.

Oil stores grew by 2 million barrels during the week, whereas analysts were expecting a 600,000 barrel build. Motor gasoline stores gained 1.4 million barrels, compared with a 1.2 million barrel increase that analysts were expecting.

Distillate stores grew by 512,000 barrels, less than the 1.3 million barrels that were estimated. Refinery utilization grew by 1.6 percentage points during the week to 91.1%, bringing it over the important 90% hurdle for the first time this year.

Although the growth in crude stores would suggest lower prices, analysts are forecasting that demand for oil will continue to grow as refinery utilization rates and motor-gasoline demand increase going into the summer driving season. That sentiment allowed crude prices to climb.

Refinery utilization rates remain roughly 4% below normal for this time of year, which has contributed to record-high profit margins for gasoline refiners.

Tight gasoline inventories and high prices at the pump have renewed concerns about possible price-gouging among members of Congress in Washington. Several members have called for investigations into the matter.

Elsewhere, geopolitical issues were again taking center stage for many energy traders, namely the fact that a group of U.S. Navy warships carrying 17,000 sailors entered the narrow Straight of Hormuz to the south of Iran. The move is a strong show of force that is meant to coincide with an upcoming International Atomic Energy Agency report on Tehran's nuclear plans.

The report is expected to reveal that Iran's nuclear enrichment program is advancing faster than the IAEA had originally expected.

"There is a strong fundamental relationship between tight supplies and higher crude prices," said Max Pyziur, energy analyst at CPM Group. "The geopolitical noise in the background adds gravy to the affair. Everything makes for a very bullish configuration in the market."Meanwhile, roughly 6,000 employees of the Nigerian National Petroleum Co. are said to be preparing to strike at midnight if an agreement isn't reached to save jobs at the recently sold Port Harcourt refinery in the southern delta region, according to analysts at Strategic Forecasting in Austin, Texas.

If the workers do in fact stand down, it would mark the latest unsettling development in Nigeria. Already, the nation has seen months of unrest, namely rebel kidnappings of foreign oil workers and election-related violence, that has helped to keep oil prices high.

Meanwhile, energy stocks were mixed. The

CBOE Oil Index

gained 0.5% to 729.29.

Bernstein upgraded shares of


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to outperform from market perform, lifting its stock 1.1% to $76.71.

American Electric Power

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was upgraded by Lehman Brothers to overweight from equal weight, but the shares were only fractionally higher at $48.90.


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was downgraded by Bernstein to market perform from outperform, and it lost 1% to $81.40.

Deutsche Securities downgraded

Breitburn Energy



NuStar Energy

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Magellan Midstream

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to hold from buy.

Breitburn fell 4% to $33.13. NuStar slipped 1% to $65.24, and Magellan finished the day 1.5% lower at $47.03.