Commodity Corner: Fed 'Twists' but Oil Turns Downward

Light sweet crude oil for November delivery settled lower Wednesday, ending the midweek session at $85.92 a barrel. Brent futures edged downward to $110.36.

The WTI and Brent contracts experienced losses despite the Federal Reserve's announcement Wednesday that it was launching a different type of quantitative easing (QE) that observers have called "Operation Twist." The Fed's previous QE actions have been bullish for crude oil because they weakened the U.S. dollar, making oil a better buy for investors holding other currencies.

In its latest attempt to spur economic growth, the Fed will sell $400 billion in short-term Treasury securities and buy an equal amount of long-term Treasuries. In this context, "short-term" refers to securities with maturities up to three years and "long-term" corresponds to maturities ranging from six to 30 years. The central bank, whose Federal Open Market Committee approved Operation Twist without unanimous support, hopes the move will lower long-term interest rates and make credit cheaper. In theory, the move could compel businesses to embark on capital projects or boost hiring and embolden consumers to take out mortgages or buy cars.

Also on Wednesday, the Energy Information Administration reported that U.S. commercial crude oil stocks fell by 2.1 percent (7.4 million barrels) last week to 339.0 million barrels. Although the 7.4 million-barrel draw was much steeper than expected (Platts' survey of analysts had projected a draw of only 1 million barrels), lingering uneasiness about the economy likely contributed to the day-on-day loss.

The WTI traded within a range from $84.92 to $87.99 and Brent futures fluctuated from $109.44 to $112.40.

Natural gas for October delivery lost seven cents to end the day at $3.73 per thousand cubic feet. The contract price fluctuated from $3.72 to $3.80.

The front-month contract for reformulated gasoline settled at $2.67. It peaked at $2.74 and bottomed out at $2.646.