UPDATE 1-Valero CEO sees high oil prices hitting '08 profits

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SAN ANTONIO, May 1 (Reuters) - Valero Energy Corp's (VLO.N: Quote, Profile, Research) 2008 profits will be hurt by high oil prices, CEO Bill Klesse said at the largest U.S. oil refiner's annual general meeting on Thursday.

"The expectation is we're going to have lower earnings than in previous years," Klesse said.

Current U.S. inventory of gasoline is 18 million barrels higher than it was last year as the summer driving season --historically the period of highest gasoline demand --approaches, he told shareholders at the company's annual meeting.

"That's just too much gasoline inventory," Klesse said. "But it's coming down and its coming down drastically. It's been coming down in the last seven weeks."

Independent refiners like Valero, which don't own or operate oilfields, have been hit hard by the run-up in oil prices to $120 per barrel, while retail gasoline prices have hit $3.61 per gallon.

In 2007, when gasoline prices peaked in the summer driving season at $3.25 a gallon, the price of crude was about $65 per barrel.

About 47 percent of production from Valero's 16 North American refineries is in gasoline. Valero is seeing better margins in diesel due to international demand, Klesse said. (Reporting by Erwin Seba; Editing by John Picinich)