Oil Ends Lower Despite Fed Decision

NEW YORK (DTN) -- New York Mercantile Exchange oil futures ended lower Thursday afternoon but pared losses after the dollar slumped to a better two-week low after the Federal Reserve left its short-term interest rates unchanged at a record low of zero to 0.25% as most analysts had expected.

NYMEX October WTI crude futures settled 25 cents lower at $46.90 barrel, moving off a two-week spot high of $47.71. ICE November Brent eased 67 cents to $49.08 bbl after inside trade.

In products trade, NYMEX October ULSD futures eased 1.17 cents to $1.5297 gallon while NYMEX October RBOB futures nudged down 0.61 cents to $1.3760 gallon after inside trade.

On Wall Street, U.S. equities moved slightly higher across the board while the U.S. dollar index fell to a better than two-week low after the Fed decision.

Markets had traded choppy before the Fed decision, but picked up after the 1 p.m. CDT decision and during a subsequent news conference by Chair Janet Yellen, who made dovish comments. The oil futures complex briefly moved mixed during aftermarket trade as Yellen explained the reasoning behind the Fed decision.

Yellen said monetary policy will remain accommodative for a while and federal funds rates won’t be raised until the Fed is confident the U.S. economy can sustain higher rates. The Fed wants to see further labor market improvement and for inflation to start moving toward its 2.0% target.

Yellen didn’t rule out an October rate hike, however, but said any future rate decision will depend on incoming data. Rates haven’t been raised in nine years and today’s decision was expected to be bullish for oil futures while bearish for the U.S. dollar.

While the labor market has improved this year, inflation remains weak due to low oil prices and weak exports. U.S. exports have weakened due to the strong dollar and low demand from overseas buyers, she said.

The Fed is worried about slowing growth in emerging markets such as China pulling back the global economy, and potential negative spillover effects on the U.S. economy.

She said that for now, there’s no significant change seen in the economic outlook of the United States, which remains resilient, although low inflation remains a worry for policymakers. The Fed lowered its inflation outlook.

Chicago-based analyst Phil Flynn said worries about China continue to be a drag on the oil market, which explains why oil futures didn’t rally on the Fed decision.

On Wednesday, the oil futures complex rallied after the Energy Information Administration reported a bigger weekly domestic crude oil stock draw than the market expected.

The crude draw also was seen at the Cushing, Oklahoma, supply hub that serves as the delivery point for the NYMEX-traded U.S. benchmark crude oil. But the data on products were bearish, showing distillate and gasoline stockpiles rose more than expected while demand eased in the week ended Sept. 11.

George Orwel can be reached at george.orwel@dtn.com