Energy Sector Roundup: Oil jumps on supply data

Following is a summary of top stories in the energy sector Wednesday afternoon.

Supply Concerns Send Oil Past $133

Runaway oil prices blew past $130 a barrel for the first time Wednesday and kept going, while gasoline prices persisted in their own relentless climb, rising above $3.80 a gallon.

Wednesday's rally was fed in part by a report from the Energy Department's Energy Information Administration, which said crude inventories fell last week, when analysts expected a modest increase.

Light, sweet crude for July delivery rose as high as $133.38 a barrel in afternoon trading on the New York Mercantile Exchange before retreating slightly to settle up $4.19 at $133.17.

In other Nymex trading, June gasoline futures rose 9.21 cents to $3.3965 a gallon, and June heating oil futures rose 13.34 cents to $3.9084 a gallon. Both contracts set new trading records. June natural gas futures rose 27.5 cents to $11.640 per 1,000 cubic feet.

Drop in Crude Supplies Catches Analysts by Surprise

Crude-oil inventories fell unexpectedly last week after four straight weeks of gains.

For the week ended May 16, crude-oil inventories dropped by 5.4 million barrels to 320.4 million barrels, which is 6.5 percent below year-ago levels, the Energy Department's Energy Information Administration (EIA) said in its weekly report.

Analysts expected a gain of 900,000 barrels, according to a survey by Platts, the energy research arm of McGraw-Hill Cos.

Gasoline inventories fell by 800,000 barrels, while analysts expected stockpiles of the motor fuel to grow by 500,000 barrels.

U.S. refineries ran at 87.9 percent of total capacity on average, a gain of 1.3 percentage points. Analysts expected capacity to rise by only 0.6 percentage point.

Inventories of distillate fuel, which include diesel and heating oil, rose by 700,000 barrels. Analysts expected an increase of about 1.5 million barrels.

Analysts See More Margin Problems for Refiners

Lehman Brothers analyst Paul Cheng said the EIA report was bullish for petroleum interests, but he has some concerns. Refinery runs, he said are rising as demand for gasoline and distillates weakens. Combined with new ethanol plant startups in the next few months, Cheng thinks gasoline margins may have peaked and will decline again soon.

Soleil-Back Bay Research analyst Jacques H. Rousseau said falling gasoline inventories are not necessarily positive news for refiners. "The underlying supply/demand data remains negative," he said. "The rolling 4-week average for demand growth (versus year-ago levels) fell from -0.3 percent to -1.3 percent."

Big Oil on the Defensive

Top executives of the five largest oil companies tried to shift the country's anger over high petroleum prices to a debate over supplies in a hearing on Capitol Hill.

Sen. Patrick Leahy, D-Vt., told the executives there's "a disconnect" between normal supply and demand and the skyrocketing price of oil _ surpassing $130 a barrel even as the oil leaders testified _ that the industry has yet to explain.

J. Stephen Simon, executive vice president of Exxon Mobil Corp., said profits have been huge "in absolute terms" but must be viewed in the context of the massive scale of the industry." He also said high earnings are needed "in the current up cycle" to pay for investments in the long term when profits will be down.

"'Current up cycle,' that's a nice term," replied Leahy sarcastically, "when people can't afford to go to work" because gasoline is costing close to $4 a gallon.

Sen. Arlen Specter, R-Pa., said Exxon's annual profits increased from $11.5 billion to $40.6 billion in the past five years and there was no explanation for "why profits have gone up so high when the consumer is suffering so much."

Petrobras Hiring 40 Deepwater Rigs

Brazil's Petrobras plans to hire 40 deep and ultradeepwater rigs by 2017. That's good news for drilling and oilfield services companies, although it's not entirely clear what Brazil's state-run oil company has in mind.

"We're investigating the (1) expected mix of existing, already under construction, and yet-to-be-ordered rigs; (2) expected mix of drillships and semis; (3) the share that will realistically (economically viable) be accessible to the U.S.-listed drillers; and (4) of that U.S.-accessible share, how much of it will be newbuild opportunities?" said Wachovia Capital Markets senior analyst Tom Curran.

But Curran says the announcement is "pure positive" over the next few years because it implies more existing and newbuild rig opportunities for major U.S.-listed players.

Ukraine Cancels US Oil Exploration Deal

Ukraine is canceling a contract with a U.S. oil company planning to explore for oil and gas on the Black Sea underwater shelf.

The government says the production-sharing agreement that was signed in 2006 with the subsidiary of Texas-based Vanco Energy Co. is "plundering Ukraine's mineral reserves."

Last month, Ukraine revoked Vanco's license, and Prime Minister Yulia Tymoshenko called for an investigation into how the license was awarded.

She accused President Viktor Yushchenko of lobbying for the U.S. firm. The contract was worth some $13 million.

--Compiled by AP Business Writer Greg Stec. Questions or comments can be directed to gstec@ap.org.