WSJ: OIL FUTURES: Oil Continues Rally, Focus Turns To Inventory Data
--Crude continues rally on Fed commitment to keep rates low
--API data shows surprise draw in US crude stockpiles
--Dept. of Energy data due at 10:30 a.m. EDT
By Dan Strumpf
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Oil futures jumped Wednesday, after the Federal Reserve said it would keep interest rates low for the next two years in a bid to shore up the economy of the world's largest oil consumer.
Futures also got a boost from an industry group report late Tuesday showing a large drop in U.S. oil stockpiles, suggesting better-than-expected demand from refiners.
Traders will next look for confirmation of the stockpile draw in the Department of Energy's more closely watched report due at 10:30 a.m. EDT Wednesday.
Light, sweet crude for September delivery traded up $1.35, or 1.6%, to $80.65 a barrel on the New York Mercantile Exchange. Brent crude on ICE Futures Europe traded up $2.18, or 2.1%, to $104.75 a barrel.
Oil futures rallied Wednesday after the U.S. central bank pledged to keep interest rates close to zero through 2013. The statement fed expectations that the dollar would remain weak, which typically lifts oil prices by making the commodity cheaper for holders of other currencies. It also spurred a late-day rally Tuesday in the equities market.
Crude prices are likely to continue to track movements in the stock market, analysts say, which many traders have come to see as a barometer of broader sentiment about the health of the U.S. economy.
"The equities as well as the oil markets posted a vigorous upside response," said Jim Ritterbusch, head of the oil-trading advisory firm Ritterbusch and Associates, in a report, "as the 'risk on' trade appeared to be back in play."
Nymex crude has shed 21% this month, battered by signs of weak oil demand in the U.S. and worries about Europe's sovereign debt crisis. In addition, Standard & Poor's downgrade of U.S. debt, coupled with a flurry of data underscoring weak economic growth, has fueled fears that the U.S. could be entering another recession.
The International Energy Agency on Wednesday said a double-dip recession would reduce energy demand enough to push global markets into a surplus next year. The group, which advises the developed world on energy issues, trimmed its 2011 demand growth forecast by 60,000 barrels a day.
Still, the group cautioned the Organization of Petroleum Exporting Countries against cutting production.
"There is no justification at the present time for OPEC to think of substantially adjusting production downwards," said David Fyfe, head of the Oil Industry and Markets Division at the IEA.
Market participants will shift their focus to the Department of Energy's weekly inventory survey, expected to post an oil-stockpile increase of 1.1 million barrels, according to analysts surveyed by Dow Jones Newswires. Gasoline inventories are seen rising 200,000 barrels, while distillate inventories are seen rising 1.1 million barrels.
The American Petroleum Institute, an industry group, posted a surprise draw in crude stockpiles of 5.2 million barrels in its own survey released late Tuesday. Gasoline stocks fell 1 million barrels, the group said, while distillate stocks declined 560,000 barrels.
Front-month September reformulated gasoline blendstock, or RBOB, recently traded up 4.56 cents, or 1.7%, to $2.7132 a gallon. September heating oil traded up 6.56 cents, or 2.4%, to $2.8304 a gallon.
-By Dan Strumpf, Dow Jones Newswires; 212-416-2818; dan.strumpf@dowjones.com.
