Oil falls as refineries come back online
Higher refinery output puts pressure on gasoline prices; surprise drop in inventories provides support.
NEW YORK (CNNMoney.com) -- Oil prices fell Wednesday after a government report said refinery output is increasing, putting downward pressure on gasoline prices in futures markets.
U.S. light crude for June delivery fell 21 cents to $64.25 a barrel on the New York Mercantile Exchange. Oil had traded down 5 cents just prior to the report's release.
In its weekly inventory report, the Energy Information Administration said oil and gas refineries ran at 90.4 percent capacity, up from 88.4 percent a week ago, and far higher than oil analysts had expected.
The news caused the June reformulated gasoline contract to fall by nearly 4 cents to $2.0015 a gallon on NYMEX.
The government also reported a surprise drop in oil and gasoline inventories that helped limit the selloff in the oil markets.
EIA said gasoline supplies, closely watched ahead of the summer driving season, fell 2.7 million barrels. Analysts were looking for a drop of 2.1 million barrels, according to Reuters.
Crude supplies showed a surprise decline, falling by 1 million barrels, while distillates, used to make heating and diesel fuel, declined by 800,000 barrels. Analysts were looking for a 500,000 gain in crude stocks and a 400,000 barrel decline in distillates.
Refinery problems and strong demand have cut gasoline supplies in recent months, helping push oil and gasoline prices higher.
While pump prices remain high, averaging $2.87 Wednesday and up 30 percent since the start of the year, gasoline futures have fallen in recent days, indicating prices at the pump may have topped out, for now.
Earlier this week refiner Valero said its 158,000 barrel per day McKee 158,000 refinery in Sunray, Texas, came back online. And Sunoco plans to bring its 90,000 barrel per day Philadelphia refinery back to full production by next week, Peter Beutel, an oil analyst at Cameron Hanover, said in a research note.
The demand side of the equation remains strong. In its report, EIA said gasoline demand averaged 9.4 million barrels per day over the last four weeks, up 2.5 percent from the same period last year. The average rate of demand increase is about 1.5 percent.
Last week EIA said nationwide average summer gasoline prices should peak at about $2.87 a gallon sometime in May, which is earlier and about 11 cents lower than the peak last year. Gasoline hit an all time non-inflation adjusted high of about 3.06 a barrel in 2005 following Hurricane Katrina.
Oil prices have traded in the $55 to $65 range the last few months, but have swung widely over the last year. Crude hit an all time trading high of $78.40 last July, not adjusted for inflation, then briefly fell below $50 a barrel at the start of 2007.
Oil prices and the stocks of major oil companies like Exxon Mobil (Charts), BP (Charts), Chevron (Charts) and ConocoPhillips (Charts) are closely related, with crude prices up about 15 percent since the start of the year and the AMEX Oil and Gas Index up about 10 percent. 
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