Commodity Corner: Oil Falls As Fed Reaffirms QE2
January oil futures slipped Tuesday as a result of a stronger dollar and a report indicating that U.S. gasoline consumption declined last week.
Front-month crude settled at $88.28 a barrel, a 33-cent drop from Monday, as the euro fell 0.02 percent against the greenback. The dollar rose against the euro after the Fed's Open Market Committee announced that the economic recovery is continuing at a rate that has been insufficient to reduce unemployment. As a result, the central bank stated that it will keep its policy—first announced last month—of buying approximately $75 billion of longer-term Treasury securities each month through the second quarter of 2011. This $600 billion "Quantitative Easing 2" (QE2) strategy of buying U.S. debt has been bullish for the dollar.
A report by MasterCard Advisors finding that gasoline demand fell by nearly three percent last week also contributed to the decline in crude oil, which peaked at $88.95 and bottomed out at $87.74. The indicator of gasoline demand also contributed to a down day for January gasoline, which lost two cents to end the day at $2.30 a gallon after trading from $2.29 to $2.32.
Natural gas for January delivery ended the day at $4.255 per thousand cubic feet, an approximately 16.5-cent decrease from Monday. The expectation that major consuming markets in the Northeast and Midwest will bring their natural gas usage down to normal levels as temperatures moderate contributed to the selloff.
The price of natural gas fluctuated from $4.25 to $4.44 during Tuesday's session.