Crude oil for March delivery reversed course Wednesday, gaining more than $1.00 on actions by a major refiner and the Federal Reserve.
Oil settled at $87.33 a barrel, a $1.14 improvement from Tuesday, after Hovensa announced that it is reducing the crude distillation capacity from 500,000 to 350,000 barrels per day at its St. Croix refinery. The U.S. Virgin Islands facility is an important source of oil products for the East Coast market.
Also boosting oil was a Federal Reserve decision based on its mixed assessment of the economy. The Federal Open Market Committee (FOMC), which sets the central bank's monetary policy, voted unanimously to keep the short-term federal funds rate at zero to 0.25 percent. Moreover, FOMC decided to proceed with "Quantitative Easing 2" (QE2).
Under the previously announced QE2 plan, the Fed will buy $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The measure, announced last November, is designed to induce businesses and consumers to borrow more from lenders. Because it involves printing more money, it is expected to weaken the U.S. Dollar; hence, oil and other commodities would become a better value for investors holding other currencies.
The U.S. Department of Energy's Energy Information Administration (EIA) also reported Wednesday that the country's commercial oil inventories rose nearly 1.5 percent last week to 340.6 million barrels.
Oil traded within a range from $86.03 to $87.35.
Hovensa's St. Croix refinery decision also affected February gasoline futures, which increased 12 cents to settle at $2.43 a gallon Wednesday. In addition, the EIA's gasoline stocks report revealed a one-percent rise to 230.1 million barrels.
Front-month gasoline peaked at $2.44 and bottomed out at $2.35.
Natural gas for February delivery gained two cents to end the day at $4.49 per thousand cubic feet. It fluctuated from $4.38 to $4.51.
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