Crude Oil Surges 2.5% On Fed Decision, Supply Data

(RTTNews) - U.S. crude oil soared to end sharply higher Wednesday, after an Energy Information Administration weekly report showed crude oil inventories to have dropped much more than expected last week, even as the Federal Reserve unexpectedly decided against tapering its monetary stimulus of $85 billion monthly bond-buying program.

The Energy Information Administration earlier today revealed U.S. crude oil inventories to have plunged 4.4 million barrels, while gasoline stocks shed 1.6 million barrels in the week ended September 13. Analysts expected crude oil inventories to decline 1.5 million barrels and gasoline stocks to remain unchanged from last week.

The Federal Reserve on Wednesday decided against tapering its massive bond-buying program in place since September last. Markets anticipated a $10 billion reduction in the monthly pace of the Fed's quantitative easing purchases, from $85 billion to $75 billion. Instead, the Federal Open Market Committee maintained its unprecedented support measures in the wake of a disappointing August jobs report that raised concerns about the pace of the U.S. economic recovery.

Light Sweet Crude Oil futures for October delivery, the most actively traded contract, jumped $2.65 or 2.5 percent to close at $108.07 a barrel on the New York Mercantile Exchange Wednesday.

Crude prices for October delivery scaled a high of $108.25 a barrel intraday and a low of $105.32.

Yesterday, oil dropped for a third straight session to end at a four-week low as supply concerns eased with improving conditions in the Middle East.

The dollar index, which tracks the U.S. unit against six major currencies, traded at 80.36 on Wednesday, down from 81.15 late Tuesday in North American trade. The dollar scaled a high of 81.23 intraday and a low of 80.98.

The euro traded higher against the dollar at $1.3495 on Wednesday, as compared to its previous close of $1.3359 late Tuesday in North America. The euro scaled a high of $1.3495 intraday and a low of $1.3340.

In economic news, housing starts rose less than anticipated in August, with building permits also registering an unexpected drop, a report from the Commerce Department showed Wednesday. Housing starts in the U.S. rose 0.9 percent to an annual rate of 891,000 in August from the downwardly revised July estimate of 883,000. Economists expected housing starts to climb to 915,000 from the 896,000 originally reported for the previous month.

Meanwhile, building permits, an indicator of future housing demand, tumbled 3.8 percent to 918,000 in August from the upwardly revised July rate of 954,000. Economists expected permits at 950,000 from the 943,000 originally reported for July.

Bank of England policymakers unanimously decided to maintain quantitative easing unchanged earlier this month, as economic recovery gains steam even in the absence of additional stimulus. All the nine members of the Monetary Policy Committee led by Governor Mark Carney voted to retain the size of asset purchase program at GBP 375 billion on a consensus that more stimulus was inappropriate.