Updated from 2:09 p.m. EDT

Oil prices slid Wednesday as traders rendered a bearish verdict on a government report showing higher crude inventories and a fall in distillate stocks.

Crude stocks rose by 4.4 million barrels last week, the Energy Department said, while gasoline inventories rose by 200,000 barrels and distillate stocks fell by 1.6 million barrels. Analysts had expected a 2 million-barrel rise in crude, a 1.5 million-barrel rise in gasoline and a 1.3 million-barrel fall in distillates.

"I view the report as mixed," said Bill O'Grady, assistant director of market analysis at A.G. Edwards. "It's a little bearish for crude and distillates and a little bullish for gasoline. We did see refinery rates up at 1.6%. That's a little slower than I expected. I think most analysts were looking for about 2.2%."

December crude closed at $60.66, down $1.78 on the session. The contract rose by more than $2 a barrel on Tuesday. Meanwhile, unleaded gasoline fell 6.93 cents to $1.58 a gallon, while natural gas dropped about 29.8 cents to $14.04 per million British thermal units.

"Most of yesterday's move was reversed," James Williams, energy economist at WTRG Economics. "Inventories aren't in bad shape. We're back to over 80% of refinery utilization and the rest will probably be back to normal operating levels in two to three weeks. All of these are generally bearish for the petroleum market."

Storm-battered refineries in the Gulf of Mexico continue to come back on line. The U.S. Minerals Management Service said Wednesday's shut-in oil production was about 1 million barrels of oil per day, the equivalent of 68.2% of the gulf's daily oil production. The shut-in gas production was 5.563 billion cubic feet per day, the equivalent to 55.6% of the gulf's daily gas production.

"There isn't any evidence to suggest there's a shortage of crude right now," O'Grady said. "Right now, it's product that's the driver."

Some traders have expressed concern about a colder-than-normal winter. O'Grady said long-range weather forecasting can be "little better than a coin flip."

"Unfortunately, there are seemingly thousands of meteorologists out there," he said, "and all of them produce forecasts. It's just really hard to forecast much beyond 14 days."

In a winter outlook, the U.S. National Oceanic and Atmospheric Administration calls for warmer-than-average temperatures for much of the central and western United States, including Alaska and Hawaii. The Midwest, the Mississippi Valley, the Southern Californian coast and the East Coast have equal chances of above, near, or below normal temperatures, the agency said.

"Based on temperature patterns," O'Grady said, "it looks like we're running very close to the '36-'37 winter, which was mostly normal."

O'Grady said that when Alaska has a warmer winter, which the NOAA is forecasting this year, there is a tendency for the eastern seaboard to be colder. He stressed that this was just a tendency.

"It seems like every year at about this time the market sort of rediscovers winter," Williams said, "almost like it's a new phenomenon. That tends to go away after a while."

In company news, ConocoPhillips ( COP) beat analysts' expectations, reporting third-quarter net income of $3.8 billion, or $2.68 per share, compared with $2.01 billion, or $1.43 per share, for the same quarter in 2004. Total revenues were $49.7 billion, versus $34.7 billion a year ago. Analysts were expecting the Houston-based company to report a profit of $2.46 a share.

Kerr-McGee ( KMG) posted a third-quarter profit from continuing operations, as higher oil and gas prices offset the effect of Gulf Coast hurricanes. The Oklahoma City energy exploration company made $53 million, or 46 cents a share, from continuing operations, reversing the year-ago continuing operations loss of $24 million, or 16 cents a share. Revenue rose to $1.21 billion. Including all items, earnings rose to $3.09 a share from a nickel a year ago.

Diamond Offshore Drilling ( DO) reported net income of $82 million, or 60 cents a share, for the third quarter of 2005, compared to net income of $2.9 million, or 2 cents a share, a year earlier. Revenue for the third quarter of 2005 was $310.5 million, compared to revenue of $208.2 million for the third quarter of 2004.

Wachovia upgraded Halliburton ( HAL) from market perform to outperform. However, J.P. Morgan downgraded the same company from overweight to neutral. Shares of Halliburton were down 1.14% recently to $58.72.

In recent trading, Chevron ( CVX) dipped 0.84% to $58.18, Exxon Mobil ( XOM) fell 0.20% to $57.00, and BP ( BP) added 1.36% to $66.31.

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