Oil Prices Jump as Fed Makes Surprise No Taper Decision


Crude oil futures on both sides of the Atlantic extended intraday gains on Wednesday after the U.S. central bank said it would leave its monetary stimulus program unchanged.

The U.S. Federal Reserve said it would continue to purchase $85 billion in bonds per month fearing it could slow economic recovery if it let up on its fiscal stimulus.

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"The FOMC's decision not to taper reflects the recent slowing in the economy, the lackluster employment gains, and the concerns over deflation," said John Kilduff, partner at Again Capital in New York "Monetary support for assets, especially dollar denominated commodities will continue."

Oil prices had rallied earlier in the day after data showed U.S. crude oil inventories fell to their lowest level since March 2012. Supplies at the Cushing, Oklahoma, storage hub fell to their lowest level in 19 months as U.S. oil's discount to global benchmark Brent narrowed to its smallest point in a month.

"That was a noticeable drop," said Michael Lynch, an oil analyst and president of consultancy Strategic Energy & Economic Research Inc in Winchester, Massachusetts.

Brent oil for November delivery traded at a high of $110.15 per barrel after the Fed statement and was last trading $1.58 higher at $109.77 at 2:08 p.m. EDT (1808 GMT), after settling at a six-week low in the previous session.

U.S. crude oil for October delivery was $2.02 higher at $107.44, after hitting a high of $107.90.

U.S. crude's discount to Brent <CL-LCO1=R> narrowed to $2.64 per barrel, its smallest since Aug. 16. The spread has narrowed $4 since the start of the month, in part due to easing geopolitical worries, as well as the increased ability of new pipeline capacity to ease a glut of crude at the Cushing, Oklahoma delivery point for the U.S. oil futures contract.

Traders have been closely watching about the rapid drawdown at Cushing due to concerns about the availability of specific light, sweet crudes which can be delivered against the contract. The front-month October contract expires on Friday.

U.S. government data showed that stockpiles at the hub fell by 16.4 million barrels over the last 11 weeks to the lowest level in 19 months.

Amid worries about Cushing supplies, Hawthorn Oil Transportation has restarted its Hawthorn pipeline, which connects a rail terminal at Stroud, Oklahoma to the Cushing hub, according to industry intelligence group Genscape. Rates on the 90,000 barrel per day line have averaged 27,000 bpd this month, according to Genscape.

Brent oil prices were still supported by supply disruptions in Libya. Libya's crude oil production has recovered to nearly 40 percent of its pre-war capacity but output has risen to only 620,000 barrels per day (bpd) compared with a pre-war level of 1.6 million bpd.

Still, the market can expect higher North Sea supplies in October and more exports from Angola in November, capping a rise in prices, analysts said.

Oil had also been pressured earlier in the week after world powers held talks to eliminate Syria's chemical weapons - easing concerns that oil supply from the Middle East would be at risk.

(By Jeanine Prezioso; Additional reporting by Robert Gibbons in New York, Peg Mackey in London and Jessica Jaganathan in Singapore; Editing by William Hardy and Marguerita Choy)