Oil Higher After Fed Rate Unchanged

NEW YORK (DTN) -- New York Mercantile Exchange crude oil and ULSD futures settled higher Wednesday afternoon after the Federal Reserve left the federal funds rate unchanged. Russia said it was discussing possible cooperation with the Organization of Petroleum Exporting Countries and the Energy Information Administration detailed a steep decline in U.S. distillate stocks.

Russia’s comment was the most consequential however, as it raised hopes that a deal was in the works to reduce crude oversupply that has driven the prices of NYMEX West Texas Intermediate crude more than 10% lower this year so far.

The Federal Open Market Committee, after concluding its two-day meeting Wednesday afternoon, said rates won’t increase for now as policymakers monitor global developments. The decision was expected in the wake of recent weak economic data that spooked global markets.

The Fed raised rates in December for the first time in nearly a decade, but since then the global economy has taken a turn for the worse, including in the United States. Central banks in Japan and Europe are also expected to launch more stimulus measures, thereby adding market liquidity.

At settlement, NYMEX March WTI crude futures rallied 85 cents to $32.30 barrel, off a two-week spot high of $32.84. ICE March Brent oil futures advanced $1.30 to a $31.80 bbl settlement, moving off a two-week high of $33.49 on the spot continuation chart.

In products trade, NYMEX February ULSD futures spiked 5.75 cents or 5.8% to a $1.0252 gallon, off a two-week spot high of $1.0309. February RBOB futures contract bucked the uptrend, easing by 0.15 cents to $1.0457 gallon, off a fresh seven-year low of $0.9924 after EIA detailed a decline in weekly gasoline demand and an increase in stockpiles of the fuel.

On Wall Street, major equity indices were lower ahead of their close, while the dollar fell to a one-week low versus its peer currencies after the U.S. Federal Open Market Committee left rates steady and said the economy slowed toward the end of 2015.

Oversupply has been a major issue for oil traders. The comment by Nikolai Tokarev, the head of Russia’s pipeline firm Transneft, boosted the oil futures complex because it suggested both sides have realized it’s in their best interest to cooperate, and they are moving closer to an agreement to stabilize the market.

It came a day after Iraq’s oil minister Adel Abdul Mahdi said Tuesday that there were signs Saudi Arabia and Russia were more flexible on production levels, raising hope OPEC could agree with non-OPEC producers to cut output.

Many analysts initially doubted a deal could be reached given the fact that Russia and Saudi Arabia have been fighting to maintain or maximize their market-share for more than a year.

Also Wednesday, EIA issued its weekly oil report showing a mixed supply and demand disposition in the domestic market. Some analysts noted the EIA data was less bearish than data issued late Tuesday by the American Petroleum Institute.

EIA’s data detailed a steep decline in distillate supplies and a big jump in demand for the fuel, spurring a rally for ULSD futures. Heating oil demand soared especially in days before the snowstorm in the Northeast region this past weekend. RBOB slumped on data showing a decline in demand that pushed up inventories.

EIA's report for the week-ended Jan. 22 detailed an 8.4 million bbl domestic crude stock build, more than four times the 2.0 million bbl stock-build the market expected for crude but below the API’s 11.4 million bbl stock build.

“US oil production was slightly down on the week and total U.S. petroleum stocks fell as the large crude and distillate builds were offset by draws in the other products,” said analyst Kyle Cooper at IAF Advisors in Houston. “U.S. total petroleum demand surged over 21 million barrels per day.”

EIA said gasoline stockpiles increased by 3.5 million bbl for the week, which is more than four times the 800,000 bbl increase the market had expected, but below the 4.1 million bbl increase reported by API.

Middle distillate stocks tumbled by 4.1 million bbl, EIA reported, twice the 2 million bbl decline the market expected, while API data showed a 63,000 bbl stock decline.

Distillate stockpiles are still near the upper limit of the average range for this time of year, the data showed.

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

(CZ)