Oil Futures Rally on Fed Rate Decision

NEW YORK (DTN) -- New York Mercantile Exchange oil futures staged a late-session rally during market-at-close trade Wednesday afternoon, surging to the highest settlements so far this year after the Federal Reserve announced it would leave its benchmark interest rates unchanged, with the dollar trading near a one-week low.

The market was choppy earlier in the session as traders weighed primarily bearish weekly oil supply data issued this morning by the Energy Information Administration against bullish market sentiment.

The oil complex pulled back briefly near midday after EIA data showed a bigger-than-expected crude stock build and weaker demand, but bullish traders were encouraged by part of the EIA report showing the seventh straight weekly drop in domestic crude oil production.

"After the Fed decision on rates, the market thinks there'll continue to be more money in the market," said senior analyst Phil Flynn at Price Futures in Chicago. "The market is also anticipating a return to higher demand as crude production continues to fall."

At settlement, NYMEX June West Texas Intermediate crude oil futures advanced $1.29 to $45.33 bbl, off a six-month spot high of $45.62. June Brent crude oil futures on the IntercontinentalExchange surged $1.44 to $47.18 bbl at settlement, off a near six-month spot high of $47.45.

In products trade, NYMEX May ULSD futures spiked 4.70cts to a $1.3795 gallon settlement, off a five-month spot high of $1.3832. The NYMEX May RBOB futures contract added 1.48cts to $1.5808 gallon at settlement, off an eight-month spot high of $1.5934.

On Wall Street, equities moved higher this afternoon while the dollar fell to a four-day low versus a basket of rival currencies after the Federal Reserve issued its policy statement this afternoon. The market awaits the Bank of Japan's decision Thursday on additional stimulus measures.

"That Fed decision was interpreted as rates will be unchanged for a longer period of time, weakening the dollar and strengthening oil prices," said analyst Andy Lipow.

EIA reported U.S. crude supplies climbed 2.0 million bbl in the week-ended April 22, surpassing an expected 1.2 million bbl build. U.S. crude production fell 15,000 bpd to 8.938 million bpd, the seventh straight drop.

EIA also reported an unexpected 1.6 million bbl gasoline stock build versus calls for a 1.3 million bbl stock draw. EIA reported a 1.7 million bbl distillate stock draw for the week profiled, surpassing an expected 1.2 million bbl decline.

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