Oil futures ended a volatile session slightly higher Wednesday after the Federal Reserve said it planned to keep interest rates low in a bid to stoke the economic recovery.
Benchmark U.S. crude traded briefly above $100 a barrel after the Federal Reserve signaled it planned to keep short-term interest rates near zero "at least through late 2014," longer than previously indicated.
The move could help the feeble economic recovery in the U.S.--the world's biggest oil consumer--where a protracted slowdown has dented demand for oil and refined fuels, analysts said.
Futures later backed off their highs, but still ended the session in positive territory. Light, sweet crude for March delivery settled 45 cents, or 0.5%, higher at $99.40 a barrel on the New York Mercantile Exchange.
Brent crude on the ICE futures exchange settled down 22 cents, or 0.2%, at $109.81 a barrel.
Some market participants said the Fed's move had been expected. Still, the sluggish U.S. recovery has been a major weight on oil demand over the last year, and traders are clinging to signs that the economy might be on the mend.
"I've been reading for a week already that they were going to extend the time frame" for low interest rates, said Tom Bentz, director at BNP Paribas Prime Brokerage. Still, he said, "the market just took off."
Before the Fed's announcement, futures spent the day swinging higher and lower, after a mixed reading on oil and fuel inventories from the Energy Information Administration.
The government agency said U.S. crude inventories rose by 3.6 million barrels last week, a bigger-than-expected increase.
However, gasoline stockpiles fell by 400,000 barrels, while distillates, including heating oil and diesel, fell by 2.5 million barrels. And an indirect measure of demand improved slightly for both fuel products.
The data provided some indications of an improving picture for those betting on higher prices. Demand for fuel products has continued to reach new multi-year lows in recent weeks, and this week's data, which also showed a drop in refinery operations, suggests that the oil market is attempting to reach a better balance between supply and demand.
"There is demand out there. It's bad, but we've seen it worse in recessions," said Carl Larry, head of trading advisory Oil Outlooks and Opinions.
Analysts surveyed by Dow Jones Newswires expected oil inventories to rise just 700,000 barrels, on average. They expected distillate stocks to fall 500,000 barrels and gasoline stocks to rise 1.4 million barrels.
Nymex crude has been hovering around $100 a barrel for several weeks recently, as traders balance concerns about weak demand against tensions between Iran and the West, which have raised concerns about supply disruptions.
Tehran has threatened to close the Strait of Hormuz, a key passageway for the world's waterborne crude, in response to Western pressure over its nuclear program. The U.S. and its allies say that the program is aimed at developing a nuclear weapon, a charge Iran denies.
The European Union Monday voted to slap an embargo on crude from Iran which would take full effect July 1.
Front-month February reformulated gasoline blendstock, or RBOB, settled 2.88 cents, or 1%, higher at $2.8338 a gallon. February heating oil settled down 0.5 cent, or 0.2%, at $3.0192 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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