Oil prices settle higher after Fed decision
Wednesday, November 3, 2010; 3:30 PM
-- Oil prices rose Wednesday, as the Federal Reserve announced that it will buy $600 billion dollars in Treasurys to stimulate the economy.
The news did not seem to surprise many traders or investors, many of whom expected the Fed to act along those lines. Benchmark oil rose 79 cents to close at $84.62 on the New York Mercantile Exchange, not far from the level it maintained throughout the session.
Meanwhile, the national average for a gallon of unleaded regular gasoline dipped to $2.799 on Wednesday, according to a survey by AAA, Wright Express and the Oil Price Information Service. The price has fallen about a penny in the past week but was 11.3 cents higher than it was a year ago. Motorists could see pump prices increase in the next few weeks because oil prices are rising.
Some analysts think the amount of government securities that the Fed will buy is already factored into prices for oil and other commodities. As the Fed injects more money into the economy, the dollar could weaken further. That would support higher oil prices. Since crude is priced in dollars, a weaker dollar makes it more attractive to buyers using foreign currencies.
Speculation about what the Fed would do has captivated energy traders for weeks. Now that's it's been announced, the focus may shift to such basics as supply and demand. Oil and gas supplies are ample and demand is weak.
"It's really going to come down to how the economy seems to play out, I think, especially as we go through the holiday shopping season to see if consumers are more willing to spend this year," said Tradition Energy analyst Gene McGillian.
In its weekly report, the Energy Department said crude inventories increased by 2 million barrels to 368.2 million barrels for the week ending Oct. 29. The total was 9.6 percent more than the year-ago level and remained at the upper limit of the average range for this time of year.
Linda Rafield, Platts senior oil analyst, said crude supplies grew as refineries processed less oil for gasoline and other products.
Gasoline stockpiles fell by 2.7 million barrels to 212.3 million barrels, according to the Energy Information Administration. Demand for gasoline over the past four weeks was 9 million barrels a day, unchanged from the year-ago period.
Supplies of distillate fuel, which include diesel and heating oil, dropped by 3.6 million barrels to 164.9 million barrels.
In other Nymex trading in December contracts, heating oil added 3.43 cents to settle at $2.3279 a gallon, gasoline gained 2.84 cents to settle at $2.1380 a gallon and natural gas fell 3.4 cents to settle at $3.836 per 1,000 cubic feet.
In London, Brent crude rose 97 cents to close at $86.38 a barrel on the ICE Futures exchange.
Associated Press writer Stephen Bernard contributed to this report.