Oil prices slipped Wednesday after news that U.S. inventories of crude, gasoline and distillates rose last week, calming some concerns that a boost in the nation's emergency crude stockpile could cause demand to swell.

By afternoon trading, however, prices had rebounded off much lower levels and hovered just below $55 a barrel _ leading many in the market to believe that the recent downtrend, which brought crude prices down as much as 18 percent this year to $50 a barrel last week, is over.

"You're seeing the psychology of the market," said Alaron Trading Corp. analyst Phil Flynn, noting that President Bush's announcement to add to the Strategic Petroleum Reserve this spring by 100,000 barrels per day shouldn't have been enough to drive up crude prices by more than $2 a barrel on Tuesday.

"We spill that much every day. It's not going to make that much of a difference," Flynn said. Instead, the return of cold weather to the Northern United States has rekindled expectations of climbing consumer demand, which should rise further when the spring driving season begins.

"To call off winter on Jan. 1 may have been a bit premature," Flynn said.

On Wednesday, light sweet crude for March delivery fell 28 cents to $54.76 in afternoon trading on the New York Mercantile Exchange, after dropping as low as $53.66 after the inventory report was released.

The contract had climbed $2.48, or 4.7 percent, to settle at $55.04 a day earlier _ its biggest jump since September 2005, when the Gulf Coast was reeling from Hurricane Katrina and watching the next storm, Rita, approach its refineries.

The jump was sparked by the Department of Energy's plans to increase the capacity of the Strategic Petroleum Reserve to 1.5 billion barrels from 691 million barrels, but in terms of pure supply and demand, the announcement shouldn't have affected markets as much as it did, analysts said.

"Fundamentally, nothing really changed: the announcement yesterday won't change the ability to get crude oil, and it won't change the fact that there's a surplus around the world," said James Cordier, president of Liberty Trading Group in Tampa, Fla.

Supplies are still at or above the average level for this time of year, the U.S. Energy Information Administration said in its weekly report Wednesday. The nation's crude inventories rose 700,000 barrels to 322.2 million barrels last week _ building on the previous week's increase, which was the biggest in more than four years.

Gasoline inventories rose 4 million barrels to 220.8 million barrels. Distillate fuels, which include heating oil and diesel, rose 700,000 barrels to 142.6 million barrels. Heating oil inventories slipped, but a huge rise in diesel fuel more than offset the loss.

Meanwhile, overall demand for petroleum products is relatively low, the EIA data indicated. Inventories of refined products rose even though refineries were operating at 87.4 percent capacity last week, the lowest level since mid-November. Furthermore, total products supplies over the last four weeks average 20.1 million barrels a day _ 2.3 percent lower than the same period last year.

Nymex heating oil futures dropped 1.62 cents to $1.5601 a gallon, and gasoline futures declined less than a cent to $1.4467.

Natural gas futures fell 11.9 cents to $7.478 per 1,000 cubic feet.

March Brent crude on London's ICE Futures exchange fell 13 cents to $54.97 a barrel.

Growing oil inventories and unusually warm weather in the United States dragged crude prices below $50 a barrel last week for the first time since May 2005.

Though the rally Tuesday was probably overblown, there's little chance energy prices will drop below $50 a barrel again anytime soon, Cordier said.

"I think we'll consolidate in these low 50s. I think that's the fair value of crude right now," Cordier said, adding that the spring driving season could bump up prices back toward the $60-a-barrel level.

The average U.S. retail price of a gallon of regular gasoline has dropped from about $2.33 on Jan. 1 to $2.147 on Wednesday, according to AAA.