West Texas Intermediate crude rose the most in three weeks after the Federal Reserve said it will maintain monthly bond purchases to stimulate economic growth.
Future surged 2.5 percent as the Federal Open Market Committee said it will continue buying $85 million in Treasuries each month. Prices climbed earlier as a government report showed that U.S. crude stockpiles fell to the lowest level since March 2012 and supplies at Cushing, Oklahoma, the delivery point for WTI, dropped an 11th week.
“The Fed move is going to boost commodity prices,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The market had built in a significant decline in bond purchases. There is now going to be more money available to prop up oil and other markets.”
WTI crude for October delivery rose $2.65 to settle at $108.07 a barrel on the New York Mercantile Exchange. It was the biggest advance since Aug. 27. Prices are up 18 percent this year. The volume of all futures traded was 19 percent higher than the 100-day average at 3:41 p.m.
Brent oil for November settlement increased $2.41, or 2.2 percent, to end the session at $110.60 a barrel on the London-based ICE Futures Europe exchange. It was also the biggest gain since Aug. 27. Volume was 26 percent above the 100-day average.
The European benchmark grade’s premium to WTI slipped to $3.32 a barrel, the narrowest gap since Aug. 19 based on settlement prices, as some supplies returned in Libya and concern that a U.S.-led attack on Syria would affect Middle East exports waned.
The monetary policy makers ended a two-day meeting today in Washington and released a policy statement at 2 p.m.
Chairman Ben S. Bernanke and his colleagues refrained from paring record accommodation as rising borrowing costs show signs of slowing the four-year expansion. Treasury yields have jumped since May, when Bernanke first outlined a possible timetable for a reduction in the asset purchases that have swelled the Fed’s balance sheet to $3.66 trillion.
There’s “no fixed calendar schedule” for tapering, Bernanke said at a press conference in Washington after the FOMC meeting. The Fed “could move” later this year, he said.
The dollar fell against the euro after the outlook, bolstering the appeal of commodities denominated in the U.S. currency as an investment. The dollar slipped as much as 1.1 percent against the common currency to $1.3512, the lowest level since Feb. 13. The Standard & Poor’s GSCI Index of 24 raw materials gained as much 1.8 percent to 647.44.
U.S. crude inventories slid 4.37 million barrels to 355.6 million last week, the biggest decline since the week ended July 12, according to the Energy Information Administration.
Cushing supplies slipped 861,000 barrels to 33.3 million. Inventories at the hub have decreased as improved pipeline networks and shipments by rail eased a North American supply glut created by rising oil production from shale formations. The new pipeline capacity caused WTI to shift into backwardation in June and July, a market structure in which oil for immediate delivery is more expensive than crude for future shipment.
U.S. crude production rose 1.1 percent to 7.83 million barrels a day, according to the EIA, the Energy Department’s statistical unit. Output has surged to the highest level since 1989 as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in the central part of the country.
“We are in the midst of a remarkable uptrend in U.S. oil production,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The rise in output takes a bit of the sting out of the inventory drop. If we are producing more here, we might need somewhat less on hand.”
Refineries operated at 92.5 percent of capacity, unchanged from the prior week. Utilization rates usually peak during the summer months when U.S. gasoline demand rises and decline after the Labor Day holiday in early September when consumption usually falls. Units are often idled in September and October for maintenance programs.
The amount of crude processed by refineries climbed 1.3 percent to 16.1 million barrels a day, the highest level for this time of year since at least 2003.
“It’s surprising to see that refinery runs have held up so strongly,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “I expected to see refinery operations drop as they moved into maintenance.”
Gasoline stockpiles decreased 1.63 million barrels to 216 million, the report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, declined 1.08 million barrels to 131.1 million.
Total fuel consumption increased 1.46 million barrels a day to 19.8 million last week, the most since June, the EIA said. Gasoline demand rose 423,000 barrels a day to 9.03 million.
“There was a sharp upward spike in gasoline demand last week, which is surprising for the post-Labor Day period,” Finlon said.
Implied volatility for at-the-money WTI options expiring in November was 21.3 percent, little changed from yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 666,530 contracts as of 3:42 p.m. It totaled 760,447 contracts yesterday, 20 percent above the three-month average. Open interest was 1.93 million contracts.
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