Oil prices cruised above $59 a barrel on Thursday after a decline in weekly US gasoline inventories highlighted capacity constraints in the refining system, overshadowing a rise in distillates stocks. US light sweet crude for September delivery rose 34 cents to $59.45 a barrel in Asian trade, adding to a thin overnight gain of 9 cents as the market struggled to break free of this week's $58-to-$60-a-barrel trading range.
London Brent crude gained 28 cents to $58.29 a barrel. US gasoline inventories fell last week by 2.1 million barrels with demand running 2.4 percent higher than in 2004 during the peak of the summer driving season, the US Energy Information Administration (EIA) reported on Wednesday.
The stockdraw exceeded an 800,000-barrel drop expected by analysts polled by Reuters, although supplies remained in the upper half of their seasonal average.
Distillate inventories a focus of market concern heading into the winter when demand spikes rose for the 10th consecutive week, up 3.1 million barrels in the week to July 22 and exceeding forecasts by more than a million barrels.
"Refining capacity is so tight that it would seem as if distillate production was cranked up at the expense of gasoline," said Tony Nunan, a manager at Mitsubishi Corp's international energy business in Tokyo.
"We seem to be moving from one problem to another because there is simply no slack in the system.
This appears to be what is preventing prices from going down, despite the large crude inventory in the US"
US crude stocks fell by an expected 2.3 million barrels last week to 317.8 million barrels as refiners lifted operating rates, but still above the upper end of the average range for this time of year, the EIA said.
Oil traders fear years of underinvestment have left the global refining industry ill-prepared to cope with surging demand for finished fuels, particularly in China and the United States.
Demand for distillates such as heating oil and diesel has grown far quicker than for other products, causing concern about whether refiners could meet supply this winter as northern-hemisphere homeowners fire up heating units.
Stockpiles have risen from seasonal lows earlier this year, but the prospect of unexpected outages such as hurricanes in the Atlantic disrupting the taut global supply chain has supported prices, which are up over 36 percent this year.
The crude oil data did not appear to reflect the impact of Hurricane Emily, which halted Mexican exports for several days.
This year's unusually severe hurricane season has already cut about 6 million barrels of oil production from the US Gulf, home to a quarter of US domestic output.
Supply concerns were again in focus after a fire destroyed an offshore oil production platform in India, knocking out 100,000 barrels per day (bpd) of production for at least several months, a source with operator ONGC said on Thursday.
The company will try to restore part of that production via nearby platforms after September but will not be able to resume full output for at least a year, he told Reuters.
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