Prices End Down on Lack of Signs of Imminent Fed Move

NEW YORK - Crude-oil futures turned weaker Thursday, erasing early strong gains after Federal Reserve Chairman Ben Bernanke stopped short of signaling imminent new Fed action to stimulate the economy.

Mr. Bernanke said in Capitol Hill testimony that the Fed remained "prepared to take action" to protect the U.S. economy and financial system if stresses on the financial system escalate.

"He didn't say there was going to be any immediate further stimulus measures, so those who bought near the bottom are selling and wiping out gains" seen earlier in the day, said Gene McGillian, broker and analyst at Tradition Energy.

Crude oil moved higher in the day after China cut interest rates by 0.25 percentage point, the first such move since December 2008 to stimulate the economy of the world's second-biggest oil consumer. Gains built to a one-week intraday high above $87 on anticipation that Mr. Bernanke would offer clear signs of the Fed's intentions, but rapidly shed gains as the tempered testimony unfolded.

"It was a case of hopes being raised, hopes being dashed," said Andy Lebow, senior vice president of energy futures at Jefferies Bache.

Light, sweet crude oil for July delivery on the New York Mercantile Exchange settled 20 cents lower at $84.82 a barrel. Prices have gained 2% in the previous three days after falling Friday to $83.23 a barrel, the lowest level since Oct. 7. That drop capped an $18 decline during May that was spurred by worries of sliding oil demand.

ICE Brent crude oil for July settled 71 cents lower, at $99.93 a barrel Thursday.

Analysts said the oil market is placing greater focus on macroeconomic issues rather than on oil supply-demand fundamentals amid worries that a slowing Chinese economy and slumping demand elsewhere may dry up expected demand increases this year.

The International Energy Agency, the energy policy watchdog for the major industrialized nations, projects China will be the engine of global oil demand growth this year, accounting for 400,000 barrels a day of an expected world-wide rise of 800,000 barrels a day. The IEA projects European oil demand will drop by 300,000 barrels a day, while U.S. demand is expected to fall by 200,000 barrels a day.

The Fed chairman said if China's economy slows, that would result in lower crude-oil prices, which be better for the U.S. economy.

The oil market has shrugged off high inventories and weak demand in the U.S., in a rebound from the recent heavy selloff. The Energy Information Administration reported Wednesday that U.S. crude oil stockpiles remain near 22-year highs, while inventories of gasoline and distillate fuel [diesel/heating oil] grew by more-than-expected levels because of sluggish demand in the world's largest oil consumer.

Reformulated gasoline blendstock futures for July settled 0.53 cent lower at $2.685 a gallon, while July heating-oil futures were 0.46 cent lower at $2.6671 a gallon.

Nymex July crude oil futures fell in after-hours trading, inspired by a decline in U.S. equities, said Peter Donovan, an oil trader at Vantage Trading. The contract traded to a low of $83.84 a barrel in electronic, after-hours business, down 98 cents from Thursday's settlement. The Dow Jones Industrial Average, which was up 111 points when crude settled, closed up 46 points.

Copyright (c) 2012 Dow Jones & Company, Inc.

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Brent Crude Oil : $54.33/BBL 0.81%
Light Crude Oil : $51.5/BBL 1.29%
Natural Gas : $3.75/MMBtu 1.35%
Updated in last 24 hours