NEW YORK -- Oil and gas futures fell Wednesday as investors reacted cautiously to a government report showing an unexpected drop in refinery activity and big declines in oil and gasoline inventories.
Oil and gas futures jumped immediately after the report's release, then alternated between gains and losses for the rest of the day. The mixed response may signify that overall sentiment is turning.
"A market that won't rally on bullish news may not be bullish," said Addison Armstrong, an analyst at TFS Energy Futures LLC in Stamford, Conn. "Traders are having trouble making up their minds."
Armstrong thinks many of the speculators who have driven oil prices higher in recent weeks are continuing to sell, taking profits out of the rally. Investors may also be reluctant to buy because of what happened last week, when oil prices jumped to records, then steeply declined after the government reported a sharp drop in oil inventories.
"Gun-shy could be a good word, because there is a lot of caution in this market," Armstrong said.
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Light, sweet crude for September delivery fell 27 cents to settle at $72.15 a barrel on the New York Mercantile Exchange, and September gasoline fell 0.65 cent to settle at $1.9377 a gallon. After the report was released, oil rose above $73 a barrel and gasoline jumped by more than 2 cents.
In its weekly inventory report, the Energy Department's Energy Information Administration said refinery utilization fell 2.3 percentage points to 91.3 percent in the week ended Aug. 3. Analysts surveyed by Dow Jones Newswires, on average, expected an increase of 0.1 percentage point.
Despite the decline in refinery activity, oil inventories fell 4.1 million barrels, much more than the 2 million barrel decline analysts had expected. Gasoline inventories fell 1.7 million barrels, when analysts had expected a 1 million barrel increase.
Investors are reacting tepidly to the report because none of its conclusions are extraordinary, by historic standards, said Tim Evans, an analyst at Citigroup Inc. A year ago, gas inventories fell 3.2 million barrels. On average, gas inventories have historically fallen 1.3 million barrels during the same week, Evans said.
"In that context, this decline in gasoline stocks ... it's not that impressive," Evans said.
In other Nymex trading, heating oil futures rose 0.27 cent to settle at $1.9668 a gallon. Distillate inventories, which include heating oil and diesel fuel, rose by 1 million barrels last week, the EIA said. Analysts had expected a 1.8 million barrel gain.
Crude imports fell 167,000 barrels a day to an average of 10 million barrels last week, while imports of gasoline grew 172,000 barrels to an average of 1.4 million barrels a day.
Demand for gasoline averaged 9.7 million barrels a day, 0.8 percent higher than last year, the EIA said.
"The market response may be less than some expected because of the very weak gasoline demand number," said Eric Wittenauer, an analyst at A.G. Edwards & Sons, in a research note. "Typically gasoline demand increases year-on-year 1.5 percent."
At the pump, meanwhile, gas prices fell a cent overnight to a national average of $2.821 a gallon, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May.
Gas futures and retail prices have fallen steadily in recent weeks as refineries have boosted their output of gasoline. While gas inventories fell this week and remain low by historic standards, Evans notes that there is less than a month of peak driving season left. That could explain why refiners are cutting production.
"Why spoil your own market?" Evans said. "Why add to gas inventories when there's only a month left in summer driving season?"
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