Updated from 10:59 a.m. ESTOPEC's decision to maintain record production levels and a surge in U.S. fuel inventories sent oil prices lower Wednesday. The Organization of Petroleum Exporting Countries said it will keep pumping at 25-year highs to make up for supply disruptions in Nigeria and Iraq. Production in those countries has been down due to rebel attacks on their pipelines. The decision was widely expected after a string of oil ministers said the group should keep output the same. But OPEC, which pumps 40% of the world's crude, may revise quotas when it next meets in Caracas, Venezuela, in June. An Energy Department report also fueled the drop in April crude, which fell $1.56, or 2.5%, to $60.02 a barrel on the Nymex. Crude inventories rose 6.8 million barrels to 335.1 million barrels last week, a 2% increase over the previous week. Analysts had expected crude stocks to rise by 1.75 million barrels last week, according to Bloomberg. Oil supplies, which are 10% higher than last year, are at their highest level since May 1999. Stockpiles have risen thanks to an increase in imports and lower refiner capacity. Refineries, which convert crude into refined products like heating oil, operated at 83% of their capacity last week due to heavy maintenance schedules. That led to a build of crude. While refiners typically shut down in March to retool before summer, there are larger numbers of them closed right now. If they don't come online within a month, imports would have to make up the difference, said Rakesh Shankar, an energy analyst at Economy.com. Stockpiles of unleaded gasoline and distillates both fell because refineries were not producing as much as they usually do. Unleaded gasoline inched up a penny to $1.65 a gallon after inventories of that fuel fell by 1.1 million barrels to 224.8 million barrels. Higher demand for gasoline also contributed to the drop.
Analysts were divided over whether gasoline inventories will rise or fall; they remain at levels similar to this time last year. A 2.7 million-barrel decline in distillate stocks pushed down heating oil prices by 2 cents to $1.69 a gallon. Distillates include heating oil. The board of the International Atomic Energy Agency, which oversees nuclear activities for the U.N., was also meeting in Vienna on Wednesday to discuss Iran's nuclear activities. The U.S. and its Western allies clashed with Iran in the meeting, with the West threatening a referral to the U.N. Security Council. That could lead to economic sanctions against Tehran, though many analysts see it as an empty threat. "Are they crazy?" asks Jim Williams, an energy analyst with WTRG Economics in London, Ark. "How many ways can you spell world recession?" Iran restarted small-scale uranium enrichment last month in defiance of Western threats. Tehran maintains its nuclear development activities will be used for producing electricity, and not, as the West suspects, to build an atomic weapon. Natural gas prices lost 3 cents to $6.64 per million British thermal units as warm weather moves into the Northeast. Temperatures are expected to climb into the upper 50s and 60s later this week, according to AccuWeather.com, a State College, Pa.-weather forecaster. Prices could fall more Thursday when the U.S. Energy Department releases a report on natural gas supplies at 10:30 a.m. EST. Analysts polled by Bloomberg expected a drawdown of 103 billion cubic feet, which compares to a five-year average decline of 108 billion. Natural gas inventories are 21% above last year and 48% higher than the five-year average. Meanwhile, Exxon Mobil ( XOM) said Wednesday it would increase capital spending this year, but did not give a specific figure. The supermajor spent $17.7 billion last year and projected it would sink $18 billion to $20 billion in projects this year. The spending increase comes on the heels of accusations that the energy giant is not investing enough in new production. Last year, Exxon earned a record $36 billion, the highest for any U.S. public company, largely due to skyrocketing energy prices. After rising to $60.11 earlier this afternoon, Exxon shares lost 22 cents, or 0.4%, to $59.63.