Why Oil Prices Are Up

Oil prices turned higher recently due to drop in refinery activity, flat crude stocks and arrival of cyclone on the Persian Gulf. Growing gas supply had no effect on the gas prices. U.S. light crude rose 29 cents to settle at $65.90 a barrel on the New York Mercantile Exchange.

In its weekly inventory report, the Energy Information Administration EIA said gasoline supplies were up by 3.5 million barrels. Analysts were looking for a gain of 1.4 million barrels. Crude stocks rose by 100,000 barrels, while distillates, used to make heating oil and diesel fuel, increased by 1.9 million barrels. Analysts were looking for a gain of 300,000 barrels of crude and an 800,000-barrel rise in distillates. However a decline in the refinery activity played an important role in pushing prices higher. Refineries ran at 89.6% capacity, a surprise drop from last week's 91.1%.

The average gas price hit a record high of $3.227 a gallon two weeks ago due to refinery problems. But recently refineries have begun to come back online and gasoline stocks have grown, helping gas prices. Gas stood at $3.14 a gallon nationwide Wednesday.

The arrival of cyclone, the strongest storm to reach Oman in 30 years, disrupted the country's crude exports of 650,000 barrels per day for a second straight day adding to supply worries that have underpinned the market. The cyclone is expected to have a bigger impact on shipping in the Gulf rather than on Iran's oil facilities, which are concentrated inland and away from the storm's projected track.

The AMEX oil index, which includes stocks of big oil companies like BP, Exxon Mobil XOM, ConocoPhillips COP, Chevron CVX and Royal Dutch Shell RDS.A, is up about 5% in 2007.