NEW YORK (Dow Jones)–Crude futures pared gains Thursday after a U.S. government report showed an unexpected increase in gasoline inventories, suggesting that demand remains weak.

Light, sweet crude for August delivery was recently trading up $1, or 1.4%, at $75.07 a barrel on the New York Mercantile Exchange, falling from $75.65 before the U.S. Energy Information Administration released its weekly inventory data. August Brent crude on the ICE futures exchange recently traded 95 cents, or 1.3% higher, to $74.38 a barrel.

Gasoline stockpiles rose by 1.3 million barrels in the week ended July 2, according to the EIA, defying expectations in a Dow Jones survey of analysts and traders for a 500,000-barrel drop. Gasoline stockpiles are at the highest level since 2001 for early July.

The build in gasoline inventories in what is traditionally the peak summer-driving season raised concerns about the strength of demand. While the U.S. economy pulled out of recession months ago, high unemployment has kept gasoline consumption down as fewer people are commuting to work or taking trips. High stockpiles have reflected that weak demand.

“It’s the height of driving season here and we’re still seeing a build,” said Matt Smith, an analyst with Summit Energy. “If we’re not seeing the strength now it’s a bit of a worry for the rest of the driving season.”

Front-month August reformulated gasoline blendstock, or RBOB, saw the day’s gains nearly cut in half after the EIA data, recently trading 2.38 cents, or 1.2%, higher at $2.0491 a gallon.

U.S. crude stocks fell by 5 million barrels for the week ended July 2, the EIA reported. The decline was larger than the 1.8 million-barrel drop analysts expected, helping to keep oil prices in positive territory.

Stocks of distillates, including heating oil and diesel, rose by 300,000 barrels, below expectations for an increase of 1.4 million barrels. August heating oil recently traded 3.15 cents, or 1.6%, higher at $2.0102 a gallon.

Refinery utilization rose 1.4 percentage points to 89.8% of capacity, the highest rate since January 2008.

Crude futures had rallied prior to the inventory report, following a fall in weekly U.S. jobless claims and a report late Wednesday from the American Petroleum Institute, an industry group, that also showed a large oil inventory drop.

Despite the gasoline build, the decline in oil stockpiles was large enough to keep futures in positive territory.

“You have a slight build in gasoline stocks and it put a little bit of softness in the market, but it really isn’t a substantial change,” said Peter Donovan of Vantage Trading.

-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; jerry.dicolo@dowjones.com

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