By Barani Krishnan
NEW YORK (Reuters) - Oil prices rose on Wednesday as U.S. crude stockpiles slipped for a second straight week, but traders and analysts said inventories were still hefty for this time of year and could undercut the market's advance.
Crude futures have risen between 20 and 25 percent over the past six weeks on signs that increasing demand ahead of the peak U.S. driving season could ease a supply glut.
U.S. government data showed oil inventories fell 2.2 million barrels in the week to May 8 to below 485 million barrels, compared with analysts' expectations for an increase of 386,000 barrels. Gasoline and distillate stockpiles also declined.
Oil futures rallied right after the Energy Information Administration's (EIA) data, but quickly pulled off their highs, with U.S. crude briefly slipping into the negative, as analysts struggled to explain a report that seemed to have few bearish qualities.
"We are still about 20 percent higher than a year ago in terms of inventories," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York.
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"We need to lose at least 1.5 million barrels a day from production to balance the market, but that seems not likely with the marginal cuts in U.S. output so far and OPEC looking to produce as much as it can into this market."
Brent crude was up $1.04 at $67.90 a barrel by 12:26 p.m. EDT (1626 GMT), after hitting a session high at $68.05.
U.S. crude rose 49 cents to $61.24 a barrel after reaching an earlier high of $61.85.
Oil was also supported by the dollar's plunge to a three-month low against a basket of currencies, following weak retail sales data for April.
Some said the EIA report signalled improved fundamentals for U.S. crude, citing the near 1 million-barrel drop in supply at the crude futures delivery hub of Cushing, Oklahoma as one example.
"The report is clear cut in its bullish message to the market," said John Kilduff, partner at Again Capital LLC.
But others argued that refinery runs were down last week while imports up and production both showed an uptick. "To me, the data still looks suspect," said Dominick Chirichella, partner at the Energy Management Institute in New York.
(Additional reporting by Christopher Johnson and Himanshu Ojha in London and Florence Tan in Singapore; Editing by Marguerita Choy)
