"The refineries have finally gotten their act together," Flynn said. "They're back to normal, almost."
As the industry rebounds from a spring and early summer in which refiners experienced an unusual number of outages, it is drawing down crude inventories that had hit 9-year highs. Some investors see that draw as a sign crude inventories are tightening.
"That's going to keep the (crude) market underpinned for now," Flynn said.
But traders also remember last summer, when oil prices plummeted by almost $20 in a little over a month after hitting record highs.
"Oil does have a tendency to peak in late summer," Flynn said. "Seasonally-speaking, this bull market's on borrowed time."
Light, sweet crude for September delivery fell $1.30 to $76.91 a barrel on the New York Mercantile Exchange after rising as high as $78.77 earlier. That surpasses the previous intraday record of $78.40, set in July 2006.
On the other side of the petroleum supply chain, refineries are producing more gasoline. That news sent September gasoline futures down 7.97 cents to $2.0262 a gallon on the Nymex.
Retail prices typically lag the futures market, and prices at the pump fell by 0.9 cent overnight to a national average of $2.867 a gallon, according to AAA and the Oil Price Information Service. Gas prices peaked at $3.227 a gallon in late May. Gas futures have fallen steeply in recent weeks as refineries have ramped up operations.
Refineries are also churning out more distillates, including heating oil. Nymex heating oil futures fell by 5.01cents to $2.0731 a gallon.
Nymex natural gas futures gained 21.5 cents to $6.406 per 1,000 cubic feet. In London, September Brent crude fell $1.51 to $75.54 a barrel on the ICE Futures exchange.
Analysts surveyed by Dow Jones Newswires, on average, had expected crude inventories to fall by 690,000 barrels. Refinery utilization jumped by 1.9 percentage points to 93.6 percent of capacity, more than double an expected increase of 0.7 percentage points.
Gasoline inventories rose by 600,000 barrels, the EIA said. Analysts had expected an increase of 1.1 million barrels. Inventories of distillates, which include heating oil and diesel fuel, rose by 2.8 million barrels. Analysts had expected distillate inventories to rise by 1.4 million barrels.
Gasoline imports fell last week to a little over 1.2 million barrels a day, on average, down from an average of nearly 1.7 million barrels a day a week earlier. Crude oil imports averaged about 10.2 million barrels a day last week, down 213,000 barrels a day from the previous week.
Demand for gasoline remains strong, the EIA said, averaging nearly 9.7 million barrels per day over the past 4 weeks, up 1.1 percent from the same period last year.
But Jason Schenker, an economist at Wachovia Corp., said demand growth has actually slowed over the last two weeks. If that trend continues, and inventories of gasoline and heating oil continue to grow, there will be few fundamental reasons left to support high oil prices.
Analysts have placed much of the blame for the recent run-up in oil prices on speculators and technical buying by large investment funds. But the run can only last so long, many analysts argue.
"American consumers don't demand crude oil, they demand products," Schenker said. "U.S. oil inventories are still quite robust."