WSJ:Oil Prices Rally as Fed Keeps Up Pace of Bond Buys
By BRETT PHILBIN CONNECT
NEW YORK--Oil futures rallied Wednesday, posting their biggest gain in more than three weeks, after the Federal Reserve said it would keep its bond-buying program in place, alleviating concerns that the central bank would begin to roll back a measure that has helped boost crude prices.
Meanwhile, a bullish oil inventory report also lent support to the crude market, as U.S. oil stockpiles fell more than expected, dropping to their lowest level in roughly 18 months.
Light, sweet crude for October delivery settled $2.65 higher, or 2.5%, to $108.07 a barrel on the New York Mercantile Exchange. Brent crude for November delivery on the ICE futures exchange gained $2.41, or 2.2%, to $110.60 a barrel.
Both the U.S. and European benchmarks posted their largest dollar and percentage gains since August 27.
While oil futures were already on track to finish higher Wednesday, the Fed surprised market participants by saying it would continue its policy of purchasing $85 billion each month in mortgage-backed securities and longer-term Treasury bonds.
Prior to the announcement, many economists expected to see a small reduction in the pace of bond purchases, a measure that has helped oil prices by weakening the dollar, making crude cheaper to buy using other currencies.
"Anything that's bearish for the dollar is bullish for crude and vice versa," said Pavel Molchanov, an energy analyst at Raymond James.
"The fact there is no taper doesn't in and of itself improve physical demand for petroleum products," he said, adding that he believes the Fed move represents a "sentiment trade" for the oil market.
Following a two-day meeting of its policy-setting Federal Open Market Committee, the central bank said it wanted to see more evidence that the economy can sustain improvement before beginning to dial back the stimulus program.
Jeffrey Grossman, president of BRG Brokerage, an oil options brokerage, said the announcement "gives the oil market some more legs," though he wondered if it was a temporary reprieve, given the recent weakness in prices as concerns about a potential military strike in Syria faded, easing fears over possible Middle East supply disruptions.
Earlier Wednesday, the crude market was bolstered by a report from the Energy Information Administration, which showed that oil stockpiles for the week ending September 13, fell by 4.4 million barrels, an amount much greater than 1.2-million barrel decline analysts had projected. Crude inventories of 355.6 million barrels are now at their lowest level since March 2012.
The data also painted a positive picture for oil demand, revealing that refiners operated at 92.5% of capacity, unchanged from the prior week, as they processed 16.1 million barrels of crude, the most for this time of year in more than 30 years.
The surge came as crude imports fell by 5.5% week-over-week and U.S. production continued to boom, rising to 7.8 million barrels a day, a level the country last reached 24 years ago.
In a research note, BNP Paribas analysts wrote that after a "a bullish headline number" in weekly inventory changes, oil prices "began to recoup some of the recent declines...driven by the deflation of geopolitical risk" in the market.
Front-month October reformulated gasoline blendstock, or RBOB, climbed 8.10 cents higher, or 3%, to $2.7421 a gallon, rebounding from a roughly nine-month low in the prior trading session. October heating oil rose 4.22 cents, or 1.4%, to $3.0405 a gallon.
