Oil rises on inventory drop
November 4, 2009
New York - Oil prices rose by one percent on Wednesday after government data showed an unexpected decline in US crude inventories, and the US Federal Reserve said it planned to keep interest rates low.
US crude for December delivery rose 80 cents to settle at $80.40 a barrel, in a third consecutive day of gains. In London, Brent crude settled up 78 cents at $78.89 a barrel.
Data from the US Energy Information Administration showed crude inventories decline by 4 million barrels in the world's biggest consumer in the week to October 30, countering analyst expectations for an increase.
The decline helped lift oil markets, which have been eager to see signs of a turnaround in the economy and flagging fuel demand.
The Federal Reserve's Open Market Committee expressed confidence that a US economic recovery was building - which could spur more demand for crude - but it stuck to an earlier commitment to keep interest rates near zero for "an extended period" to help usher the economy out of recession.
Analysts had warned earlier that oil prices could fall if the Fed signalled any intention to boost the cost of borrowing.
Analysts said the EIA inventories report showed US fuel demand was still slow to recover, as oil product stocks posted only modest draw-downs last week, in spite of a 1.2 percentage point drop in refinery utilisation rates.
"The crude drop has boosted the market, but the report can't be seen as too bullish. The fact is refinery rates dropped more than a percent and we still didn't see a major drop in product inventories," said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut.
"Refiners don't see the need to push through more crude, because demand hasn't been recovering at the pace that some expected."
Gasoline stockpiles fell by 300 000 barrels last week, against expectations for a slight build, while distillate inventories dropped a less-than-expected 400 000 barrels, according to the EIA.
Gold hit a record high above $1,095 per ounce as the dollar weakened and after the International Monetary Fund's 200-ton sale of gold to India's central bank enhanced sentiment towards the metal.
Investors have put cash into commodities this year as a hedge against inflation, helping to lift oil prices from below $33 a barrel in December 2008.
Oil drew support on Wednesday from a weakening dollar, which fell against a basket of currencies. A weaker dollar makes commodities like oil cheaper for those holding other currencies.
The Fed's closely watched policy statement signalled it would not scale back economic stimulus measures. The Fed expects to keep overnight interest rates, which it cut close to zero in December, exceptionally low for a long time, citing "low rates of resource utilisation, subdued inflation trends, and stable inflation expectations." - Reuters
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