West Texas Intermediate oil rose the most in almost two weeks after the Federal Reserve said it will keep up its pace of bond buying to spur economic growth and U.S. inventories unexpectedly dropped.
Prices advanced 0.9 percent as the Fed pledged to keep up $85 billion in monthly purchases until “the outlook for the labor market has improved substantially,” according to a statement released at the end of a two-day gathering of policy makers. Most economists in a Bloomberg survey before the meeting forecast the central bank will halt the stimulus in the first half of 2014. Supplies fell for the first time since January.
“Stimulus is not going away anytime soon,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There is going to be plenty of money coming into the system and it should help engender further gains for crude.”
WTI futures for April delivery, which expired today, rose 80 cents, or 0.9 percent, to settle at $92.96 on the New York Mercantile Exchange, the biggest gain since March 7. The more actively traded May contract was up 98 cents, or 1.1 percent, at $93.50. The volume of all futures was 15 percent below the 100-day average for the time of day at 3:46 p.m., according to data compiled by Bloomberg.
Brent for May settlement increased $1.27, or 1.2 percent, to end the session at $108.72 a barrel on the London-based ICE Futures Europe exchange. It closed at $107.45 yesterday, the lowest level since Dec. 10. The volume of all futures was 20 percent below the 100-day average. Brent’s premium over the same-month WTI contract was $15.22, up from yesterday’s $14.93.
The Fed’s asset purchases will remain divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities, the central bank said. It began the third round of large-scale asset purchases in September.
The central bank also left unchanged a statement that it plans to hold the target interest rate near zero as long as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.
Prices also rose as U.S. inventories fell 1.31 million barrels in the seven days ended March 15 to 382.7 million, the first decline since Jan. 11, according to the Energy Information Administration, the Energy Department’s statistical arm. Analysts surveyed by Bloomberg forecast a gain of 2 million.
The biggest supply drop was on the West Coast, where stockpiles decreased 2.75 million barrels. A change in oil supplies in the area, classified by the department as PADD 5, is sometimes disregarded by traders because the region’s distribution system is isolated from the rest of the U.S. said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors.
Excluding the West Coast, supply rose 1.44 million barrels.
“If you take out West Coast, inventories actually had a build,” Zahir said. “Overall, it’s a mixed report. Demand is still pretty weak.”
Total petroleum consumption dropped 4.5 percent to 17.8 million barrels a day in the week ended March 15, the weakest level since Jan. 4.
U.S. crude production slipped 9,000 barrels a day from the highest level since 1992 to 7.15 million. Stockpiles at Cushing, Oklahoma, the largest U.S. oil-storage hub and the delivery point for New York-traded futures, shrank by 286,000 barrels to 49 million, the EIA reported.
Oil also gained as the European Central Bank is likely to delay a vote on emergency support for Cyprus, two people familiar with the deliberations said, giving the government and euro-area officials more days to forge a deal after a banking-tax measure was defeated yesterday.
While the island country accounts for less than half a percent of the euro-region economy, the fight over the bank tax risks triggering new turmoil in the financial crisis that began in 2009 in Greece. The European Union accounted for 16 percent of the world’s oil demand in 2011, according to BP Plc’s Statistical Review of World Energy.
“Oil is going back and forth on the Cyprus situation,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
The euro gained as much as 0.8 percent to $1.2979. A stronger euro and weaker dollar increase dollar-denominated oil’s appeal as an investment alternative.
Implied volatility for at-the-money WTI crude options expiring in May was at 18 percent at 3:45 p.m. in New York, down from 19.2 percent yesterday. The figures are down from 24.7 percent on Feb. 21.
Electronic trading volume on the Nymex was 404,454 contracts as of 3:47 p.m. It totaled 680,198 contracts yesterday, 25 percent above the three-month average. Open interest was 1.65 million contracts.