NEW YORK (Dow Jones)--Oil prices were slightly higher Wednesday morning after rallying in kneejerk reaction to government data that showed across the board declines in U.S. petroleum inventories.
After growing for three straight weeks, U.S. crude stocks posted a modest decline of 800,0000 barrels last week as refinery utilization rose by 0.6 percentage point to 86.2% of operating capacity, the federal Energy Information Administration reported in its weekly status report. Analysts had expected a build in of roughly 2.3 million barrels in crude stocks.
The front month May crude contract on the New York Mercantile Exchange jumped as high as $71.79 a barrel in immediate reaction to the statistics before slipping back and trading as low as $71.00 a barrel, down 35 cents and then rebounding to trade at $71.38, up 3 cents.
Petroleum product stocks posted bigger declines. Gasoline stocks dropped 5.4 million barrels to 202.5 million barrels, as imports fell under 1 million barrels a day, the EIA said. Distillate stocks, which include heating oil and diesel fuel, dropped 2.8 million barrels to 114.6 million barrels.
Analysts had expected a decline of about 2 million barrels in gasoline stocks and a draw of about 1 million barrels in distillate stocks. "Everyone was looking for draws, maybe not as much, but they were looking for big draws," said Michael Cambria, vice president with brokerage Dimon Oil in New York. "The fact that the market failed to rally suggests it might be running out of steam. It just might be a bit overdone."
June Brent on London's ICE Futures was +20 cents at $72.71 after rallying to a new record high of $73.34 earlier in the session.
Petroleum products futures also shed their gains. May gasoline was down 89 points at $2.2150 a gallon. May heating oil was 83 points lower at $2.0420 a gallon.
Tom Bentz, an analyst at BNP Paribas in New York, said that data pointing to softening demand may have led some traders to bid down futures prices.
"You'd think that the market would be up stronger on the back of a 5.4 million barrel draw in (gasoline)," he said. But "demand was down on both products."
U.S. gasoline demand dropped 2.1% in the week ended April 14, to 9.1 million barrels a day. Distillate demand was off an even bigger 6.4% to 3.995 million barrels a day, the EIA said.
Besides the demand figures, there was nothing bearish about the EIA report, a broker said, adding that prices will likely stage a comeback later in the session.
"Most of the stats were bullish," he said. "We're seeing some profit taking but I see a chance to rally later."
Oil prices have staged a big rally this week, breaking above $70.85 for the first time ever against a backdrop of brewing tensions with Iran over its nuclear program and looming changes to U.S. fuel specifications.
-By Masood Farivar, Dow Jones Newswires; 201-938-2094; masood.farivar@dowjones.com
