Oil falls after Fed statement

Inventory report shows increase in gasoline and crude stockpiles on lower consumer demand.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Julianne Pepitone, CNNMoney.com contributing writer

oil.mkw.gif
Click the chart to track the latest commodity prices.
What progress is the Obama administration making toward ending the recession?
  • It's succeeding
  • The recovery is too slow
  • It's not helping at all

NEW YORK (CNNMoney.com) -- Oil prices fell Wednesday after the end of a two-day meeting in which policy makers discussed how to stimulate the economy.

The Federal Reserve's Open Market Committee released a statement at 2:15 p.m. ET, saying it would buy $300 billion of long-term Treasury debt in an effort to inject liquidity into the financial system.

Crude prices were down $1 to $48.16 a barrel after the statement's release.

It wasn't much of a change from earlier in the session. With the benchmark rate remaining at its record-low range of 0-0.25%, traders are instead looking to the statement for hints on the economic outlook and announcements of additional efforts to boost the financial system.

"More than any other meeting in recent history, this one's baked into the cake already," said Chris Lafakis, economist at Moody's Economy.com. "The market always looks at the Fed, but this time they're not expecting too much."

At the end of the day, prices settled at $48.14 a barrel; down $1.02 from Tuesday.

Inventory report: Earlier in the day, a government report said supplies of gasoline soared unexpectedly. Oil traded down $1.07 just prior to the report's release.

In its weekly inventory report, the Energy Information Administration said stockpiles of gasoline increased by 3.2 million barrels in the week ended March 13.

Analysts were expecting a decrease of 2.1 million barrels, according to a consensus estimate compiled by Platts, an energy information provider.

"These continued increases show the supply-demand balance is tight, which points toward risk for further deterioration in the market," Lafakis said.

Crude supplies increased by 2 million barrels, matching estimates. The EIA report also said distillates, which are used to make heating oil and diesel fuel, rose by 100,000 barrels. Analysts expected supplies to rise 400,000 barrels.

The sluggish global economy has hammered consumer demand for oil, which in turn has caused a glut in supply.

Amid layoffs, pay cuts and general uncertainty about the future of the economy, consumers have scaled back their use of energy. Oil prices have plummeted from a record high of $147.27 a barrel last summer.

OPEC: In response to growing stockpiles, the Organization of Petroleum Exporting Countries - whose members produce about 40% of the world's crude - has been pressured to put a floor under prices.

At an OPEC meeting March 15, the group agreed to reduce supply by a further 800,000 barrels a day to complete promised supply cuts.

Saudi Arabia, the largest oil exporter in the world, doesn't need to cut production more in order to account for other OPEC nations, Oil Minister Ali al-Naimi said in an interview in Vienna.

Member countries Iran and Nigeria are overproducing by 50%, Lafakis said.

"Saudi Arabia has cut more than it was asked to," he said, "They're picking up the slack, and they won't want to institute more cuts without more compliance from these cheating nations."

Lafakis said he didn't expect OPEC to institute more production cuts between now and its next meeting in May. Only "material events" - not a mere continuation of the sluggish economy - could spark cuts, he said.

Gasoline: The national average price for a gallon of regular unleaded gasoline increased to $1.92, up 1 cent from the previous day, according to motorist group AAA.

Outlook: Oil prices will likely rise to $56 a barrel by year's end, Lafakis said

"The economy could get worse, but if it does, OPEC will come in with more cuts," he said. "Member countries have shown they can stop inventory from rising if they are focused on it."

Crude prices will probably bottom around $40 a barrel, with a possible decline to $35 - but nothing like the lows of December and January, Lafakis said.

In the long-term, Lafakis said he expects oil prices to rise to $85 in 2011 and decline back to $70 in 2014.

Talkback: Do you have health insurance? Are you satisfied with your coverage? If you do not have health insurance, how do you pay for health care? E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com commenting policy, click here.  To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.