Energy Sector Roundup: Crude oil slides

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

Crude Down More Than $4 a Barrel

Oil prices fell sharply, even though the Energy Department reported unexpected declines in crude oil supplies last week. A stronger dollar and concerns about gas demand also weighed on prices.

Light, sweet crude for July delivery fell $4.41 to settle at $126.62 a barrel on the New York Mercantile Exchange, its lowest settlement in two weeks and biggest single-day price drop since March 19.

In other Nymex trading, June gas futures settled down 4.34 cents at $3.4042 a gallon, and July heating oil futures gave up 13.58 cents to settle at $3.6885 a gallon.

Crude Supplies Fall as Tankers Back Up

Crude-oil inventories fell unexpectedly last week for the second straight period. But government data suggests it is probably not because demand has risen, and that helped push crude prices down.

For the week ended May 23, crude-oil inventories shrank by 8.8 million barrels, down 2.7 percent from the previous week, to 311.6 million barrels, the Energy Department's Energy Information Administration said in its weekly report. Analysts expected a gain of 750,000 barrels, according to a survey by Platts, the energy research arm of McGraw-Hill Cos.

The EIA, in a rare explanatory note, said the drop in crude inventories was due to temporary delays in unloading oil tankers along the Gulf Coast, where heavy fog has been a problem.

Gasoline inventories fell by 3.2 million barrels. Analysts expected stockpiles of the motor fuel to grow by 400,000 barrels. Demand for gasoline over the four weeks ended May 23 was more than 0.7 percent lower than a year earlier.

U.S. refineries ran at 87.9 percent of total capacity on average, unchanged from the prior week. Analysts expected capacity to rise by 0.5 percentage point.

Inventories of distillate fuel, which include diesel and heating oil, rose by 1.6 million barrels _ twice what analysts expected.

In a separate report, EIA said natural gas inventories in the lower 48 states rose by 87 billion cubic feet to 1.7 trillion cubic feet for the week ending May 23 from the previous week.

The level is slightly below the five-year average of about 1.71 trillion cubic feet, and well below last year's level of 2.02 trillion cubic feet.

Natural gas for July delivery lost 52.1 cents to settle at $11.474 per 1,000 cubic feet on the New York Mercantile Exchange.

At the pump, gas prices rose about a penny overnight to a record high national average of $3.95 a gallon, according to AAA and the Oil Price Information Service. Diesel prices also set a record at $4.79 a gallon.

Refiners Shares Drop on High Prices, Flagging Demand

Shares of oil refiners fell, as concern grew among analysts and investors that high gasoline pump prices are putting a big crimp in fuel demand.

In a note to investors, Lehman Brothers analyst Paul Cheng cited fresh data from the Department of Energy and the Federal Highway Administration as further evidence to support his bearish view of the refining sector.

"The latest data suggests that the U.S. demand outlook is worse than our previous base case scenario as well as the market's consensus expectations. We now think that the U.S. negative demand trend will likely last through at least the next 12 months," Cheng wrote.

Major refining shares have tumbled over the past year amid skyrocketing crude oil and fuel prices. Fuel prices have not risen as fast as oil prices, squeezing refiners' profit margins even as consumers are cutting back at the pump.

In afternoon trading, Valero Energy Corp., lost 62 cents at $48.94, and Tesoro Corp. fell 66 cents, or 2.7 percent, to $23.48. Sunoco Inc. dropped $1.31, or 2.9 percent, to $44.24, and Frontier Oil Corp. sank 63 cents, or 2.1 percent, to $29.66.

Futures Commission Looking for Price Manipulation

Federal regulators are six months into a wide-ranging investigation of U.S. oil markets, with a focus on possible price manipulation.

The Commodity Futures Trading Commission said Thursday it started the probe in December and took the unusual step of publicizing it "because of today's unprecedented market conditions."

The commission said details of the investigation remain confidential, but announced a handful of other initiatives designed to increase transparency of the energy futures markets.

The CFTC has an agreement with the United Kingdom Financial Services Authority and InterContinental Exchange Inc.'s Futures Europe to expand information-sharing for surveillance of energy commodity contracts with U.S. delivery points, including the West Texas Intermediate crude-oil futures contracts that trade on both the New York Mercantile Exchange and ICE Futures Europe in London.

Enbridge Selling Spanish Pipeline Stake

Crude oil pipeline operator Enbridge Inc. plans to sell its minority stake in a Spanish petroleum products pipeline company for about $1.37 billion in cash.

The buyers of the 25 percent stake in Cia. Logistica de Hidrocarburos SA are subsidiaries of Deutsche Bank AG, the Public Sector Pension Investment Board, Stichting Pensioenfonds Zorg en Welzijn and AMP Capital Investors.

Toronto-based Enbridge said in February it was considering alternatives for the asset. Closing is set for next month.

Enbridge will apply sale proceeds to projects in North America. The company has about $12 billion in projects under way; including a $2.5 billion crude oil pipeline from Wisconsin to the Chicago area, a $3 billion oil line from Alberta to the U.S. Midwest, and a $2.3 billion pipeline from the Chicago area to Alberta. The company is also building regional pipelines in the Alberta oilsands region.

Gazprom and Lukoil Make Caspian Find

Russia's OAO Gazprom and OAO Lukoil say they discovered a sizable oil and gas field in the Caspian Sea _ but just how big, they are not sure.

Dow Jones Newswires quotes an official as saying it could hold up to 730 million barrels of oil.

Gazprom and Lukoil signed a deal in 2003 to develop a Caspian project with Kazakhstan's KazMunaiGaz.

Lukoil is Russia's largest private oil company, and Gazprom is the world's largest gas company.

The landlocked Caspian is believed to contain the world's third-largest energy reserves.

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