January 25th, 2012

Crude oil futures rose after Federal Reserve officials said the U.S. benchmark interest rate will stay low until at least 2014 to bolster growth and cut unemployment, boosting fuel demand.

Crude oil futures advanced 0.5 percent as the Federal Open Market Committee extended its previous pledge to keep rates low at least until the middle of 2013. The Energy Department reported that total fuel consumption increased 7.5 percent to 19.2 million barrels a day in the week ended Jan. 20.

“We’re up because of the FOMC statement,” said Hamza Khan, an analyst with the Schork Group Inc., a consulting company in Villanova, Pennsylvania. “The Fed’s policy is good for the economic outlook. This points to steady growth ahead, which will be good for oil demand.”

Crude oil futures for March delivery rose 45 cents to settle at $99.40 a barrel on the New York Mercantile Exchange. Futures dropped to $97.53 early in the session. Prices are up 15 percent from a year earlier.

Brent oil for March settlement declined 22 cents to end the session at $109.81 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to March crude on the Nymex narrowed 67 cents to $10.41 a barrel at the close of trading. That’s down from a record high of $27.88 on Oct. 14.

The Fed said it would continue its “highly accommodative” monetary policy.

“Easing credit is good for commodity markets,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.3 billion. “When the money supply increases, investors buy commodities and equities.”

Crude Oil: Iranian Exports

Crude oil futures prices have risen 1 percent so far this week after the European Union announced Jan. 23 that it would ban imports from Iran starting July 1 to pressure the country over its nuclear program. Iran has threatened to close the Strait of Hormuz, the transit point for about a fifth of global oil supply, if an embargo against its crude is implemented.

A halt of Iran’s oil exports to countries in the Organization of Economic Cooperation and Development would likely lead to a crude price increase of around 20 to 30 percent, or about $20 to $30 a barrel at current levels, “without offset from other sources,” the International Monetary Fund said in a document released today.

Crude Oil in New York has traded in a $6.34 range for the past month with futures staying between $97.40 and $103.74.

Crude Oil: ‘Slowly Growing’

“Absent any supply disruption, we will continue to bounce around where we are,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “It looks like the economy will continue to trudge along, slowly expanding and gaining strength.”

The Fed, in a separate statement today, lowered its forecast for economic growth this year to 2.2 percent to 2.7 percent, down from a projection of 2.5 percent to 2.9 percent in November. It predicted the economy in 2013 will expand between 2.8 percent to 3.2 percent, down from a previous forecast of 3.0 percent to 3.5 percent.

The number of Americans signing contracts to buy previously owned homes fell in December from a 19-month high, showing the stabilization in the market that began in late 2011 will extend into the new year. The index of pending home sales decreased 3.5 percent last month after jumping a combined 18 percent in October and November, figures from the National Association of Realtors showed today in Washington.

Crude Oil: Fuel Stockpiles

U.S. gasoline output tumbled 2.8 percent last week to 8.54 million barrels, the least since February 2010, the Energy Department report showed.

Crude oil supplies rose 3.56 million barrels to 334.8 million, the highest level since the week ended Dec. 2, according to the department. Oil imports advanced 7.1 percent to 8.85 million barrels a day, the fourth increase in five weeks.

“Product demand is still pretty solid,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “The sizable build in crude supplies was more than balanced by the drop in product supplies.”

Gasoline (DOESTMGS) inventories fell 390,000 barrels to 227.1 million in the seven days ended Jan. 20, the first decline in four weeks, the report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, dropped 2.46 million barrels to 145.5 million.

Gasoline futures for February delivery rose 2.88 cents, or 1 percent, to $2.8338 a gallon on the Nymex, the highest settlement since Sept. 8.

Refineries operated at 82.2 percent of capacity, down 1.5 percentage point from the week before. It was the lowest operating rate since May.

Crude Oil: Ramping Up

“Refinery utilization will have to ramp up in the months ahead in order to build up supplies before the summer demand peak,” Khan said. “This will increase demand for crude.”

Gasoline consumption in the U.S. peaks during the summer, when Americans take to the highways for vacations. The so-called driving season lasts from the Memorial Day weekend in late May to Labor Day in early September.

Crude oil volume in electronic trading on the Nymex was 584,742 contracts as of 4:15 p.m. in New York. Volume totaled 484,488 yesterday, 20 percent below the three-month average. Open interest was 1.34 million contracts.

- Mark Shenk in New York at Bloomberg.