Crude Rises First Time in Seven Days as Fed Cuts Rate OutlookMoming Zhou
U.S. oil futures snapped the longest losing streak since July as the dollar weakened after the Federal Reserve scaled back estimates for interest rates.
West Texas Intermediate gained for the first time in seven days. The Bloomberg Dollar Spot Index, a gauge of the currency’s performance against 10 major peers, fell 1 percent after Fed officials lowered their median estimate for the federal funds rate at the end of 2015 and 2016. A weaker dollar raises oil’s investment appeal.
Oil is still down 17 percent from this year’s peak in February as record U.S. stockpiles worsen a global supply glut. U.S. crude inventories expanded by 9.62 million barrels last week, the Energy Information Administration said Wednesday. Production was at a three-decade high as a slowdown in drilling failed to curtail output.
“The Fed is still going to raise rates, but it’s just not going to go very fast,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion. “The Fed statement is dollar bearish, and that’s going to give some support to commodities.”
West Texas Intermediate for April delivery rose $1.20, or 2.8 percent, to $44.66 a barrel on the New York Mercantile Exchange. Prices settled at a six-year low Tuesday. The volume of all futures traded was about 33 percent above the 100-day average for the time of day as of 3:10 p.m.
Brent for May settlement gained $2.4 to $55.91 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $9.26 to WTI for the same month, up from $8.32 yesterday.
The Fed reduced its estimate for the federal funds rate at the end of 2015 to 0.625 percent, compared with 1.125 percent in its December forecast. It will be appropriate to tighten monetary policy “when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term,” the Federal Open Market Committee said in a statement.
“The statement was dovish, and should be supportive of equities, industrial commodities, and oil prices,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant, in an e-mail.
Crude fell earlier after the EIA said U.S. inventories gained for a 10th week to 458.5 million barrels in the seven days ended March 13, the most in weekly data dating back to August 1982. Production accelerated to 9.42 million barrels a day, the fastest pace since at least January 1983, the Energy Department’s statistical arm estimated.
Supplies at Cushing, Oklahoma, the delivery point for WTI futures, rose 2.9 million to a record 54.4 million. The hub has a working capacity of 70.8 million, according to the EIA.
“There is just too much crude in the market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Inventories will continue to go up for at least four to six weeks. We are going to test $40 pretty soon.”
Iran, OPEC’s fifth-largest producer, said talks with the U.S. over its nuclear program are unlikely to yield an agreement this week.
Foreign minister Mohammad Javad Zarif said he doubted “we can get there in the next two days,” commenting in Lausanne, Switzerland, where talks are set to run until March 20. Negotiators have until March 31 to agree to a framework agreement.
Iran could increase exports by 1 million barrels a day if international sanctions were lifted, Oil Minister Bijan Namdar Zanganeh said.