NEW YORK — Oil futures followed stocks higher Wednesday after the Federal Reserve cut a key interest rate, raising hopes that rate cuts and congressional stimulus efforts will stave off a serious economic slowdown.
Crude prices initially wavered when the Fed announced its half percentage point cut; many energy investors were hoping for more. But energy traders were also keeping an eye on the stock market and the dollar. When stocks rose, and the dollar fell, buyers jumped into the oil market.
"Oil went up when the equity market rallied off the news," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill.
Energy investors often view stocks as a proxy for economic growth. Also, crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling. Falling interest rates tend to push the dollar lower.
Light, sweet crude for March delivery rose 69 cents to settle at $92.33 a barrel on the New York Mercantile Exchange.
Prices alternated between gains and losses for most of the day, however, as traders were torn between their anticipation of Fed rate cuts and a morning government report that showed crude oil and gasoline inventories rose more than expected last week.
In its weekly inventory snapshot the Energy Department's Energy Information Administration said crude and gasoline supplies rose by 3.6 million barrels each during the week ended Jan. 25. Analysts had expected crude supplies to rise by 2.3 million barrels, and gasoline inventories to rise by 1.9 million barrels.
"This gives an overall bearish cast to the report," said Tim Evans, an analyst at Citigroup Inc., in a research note.
Supporting prices was word that a 315,000 barrel a day Canadian oil sands field has been temporarily shut down due to freezing temperatures. Canada is the single largest supplier of crude oil to the U.S.
Other energy futures also rose Wednesday. February gasoline futures inched up 0.45 cent to settle at $2.334 a gallon, and February heating oil futures rose 0.75 cent to settle at $2.5493 a gallon. The EIA said inventories of distillates, which includes heating oil and diesel fuel, fell by 1.5 million barrels last week, slightly less than analysts had expected.
March natural gas futures rose 10.2 cents to settle at $8.045 per 1,000 cubic feet.
In London, Brent crude futures fell 53 cents to settle at $92.53 a barrel on the ICE Futures exchange.
Refinery activity fell by 1.5 percentage point last week to 85 percent of capacity, much more than the 0.2 percentage point decline analysts predicted.
Demand for gasoline fell by about 24,000 barrels last week, the EIA said, but rose over the last four weeks by 1.4 percent compared to the same period last year. Analysts tend to give the weekly demand numbers greater weight, but note that both are often revised downward when the EIA issues its monthly petroleum reports.
Recent revised EIA reports suggest demand fell more than expected late last year, Ritterbusch said.
"Bottom line, we are seeing demand deterioration due to high prices," Ritterbusch said.
At the pump, gas prices rose 0.5 cent overnight to a national average of $2.983 a gallon, reversing a recent trend of falling prices, according to AAA and the Oil Price Information Service.