Oil Holds Near $47 After Federal Reserve Leaves Rates Unchanged

Updated on
  • Fed action weakens dollar versus peers, supporting commodities
  • EIA says U.S. crude supplies decline by 2.1 million barrels

Oil traded near $47 a barrel after the Federal Reserve left interest rates unchanged.

Futures edged lower in New York after climbing 5.7 percent Wednesday on an unexpected decline in U.S. crude stockpiles. The dollar dropped after the U.S. central bank declined to boost its short-term interest-rate target at its policy-setting meeting in Washington. A weaker U.S. currency bolsters the appeal of commodities priced in the greenback as a store of value.

Oil is down 23 percent from this year’s peak in June amid a persistent global oversupply. U.S. crude inventories remain about 100 million barrels above the five-year seasonal average after government data Wednesday showed an unexpected decline last week.

"This should lead to increased volatility in the short term," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $128 billion of assets. "Now that this is over we’re going to turn our attention to the fundamentals, which are not as good as some people may think after yesterday’s inventory report."

West Texas Intermediate for October delivery slipped 25 cents, or 0.5 percent, to settle at $46.90 a barrel on the New York Mercantile Exchange after the decision was announced at 2 p.m. in Washington. The volume of all futures traded was 23 percent above the 100-day average at 2:59 p.m.

Brent Decline

Brent for November settlement dropped 67 cents, or 1.3 percent, to end the session at $49.08 a barrel on the London-based ICE Futures Europe exchange.

The benchmark federal funds rate was kept at zero to 0.25 percent, showing that policy makers are still not convinced inflation will move gradually back to their 2 percent target, despite continued gains in the labor market.

"The market is completely unsurprised and acting accordingly," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. "In recent weeks the worsening economic outlook in China has made a rate change unlikely."

U.S. crude inventories fell 2.1 million barrels to 455.9 million last week as refinery utilization climbed by 2.2 percentage points to 93.1 percent, the Energy Information Administration reported Wednesday. Crude supplies at the Cushing, Oklahoma, delivery point for WTI traded in New York, declined by 1.9 million barrels to 54.5 million.

Goldman Outlook

The glut may keep oil prices low for the next 15 years, according to Goldman Sachs Group Inc. There’s less than a 50 percent chance that prices will drop to $20 a barrel, most likely when refineries shut in October or March for maintenance, Jeffrey Currie, head of commodities research at the bank, said in an interview in Lake Louise, Alberta. Goldman’s long-term forecast for crude is at $50 a barrel, he said.

Oil prices have further to fall and won’t recover anytime soon as supply swamps demand, according to BP Plc. “The oil-price outlook is a long U, it will go down and stay down for a long time,” Peter Mather, BP’s group regional vice president for Europe and head of U.K., said Thursday at a conference in Brussels.