US Crude Settles +37c; No Surprise From Fed

NEW YORK --U.S. crude oil futures settled modestly higher Tuesday, after the Federal Reserve's policy board signaled no change in its policy of keeping interest rates low.

Nine out of 10 Fed officials voted to keep the central bank's easy-money policies in place after a one-day meeting of the Federal Open Market Committee, the Fed's policy-making body. The Fed reiterated its intention to keep short-term interest rates at "exceptionally low levels" through late 2014.

The board noted rising oil and gasoline prices as a short-term inflation component, but said the long-term inflation outlook is stable. Jason Schenker, president, of Prestige Economics, LLC, expressed concern about that.

"High oil prices and gasoline were highlighted as posing an upside risk to inflation, but not as a downside risk to growth," he noted. "Since every penny increase in the price per gallon of gasoline and diesel prices results in a loss to the U.S. economy of around $1.9 billion, the risks to growth may actually be discounted too much by the Fed."

Analysts, seeing no surprise in the Fed policy statement, expect the market to focus on near-term fundamentals of U.S. oil inventories, and continued worries over a potential supply disruption as the U.S. and western allies impose sanctions on Iran.

Light, sweet crude oil for April delivery on the New York Mercantile Exchange were 37 cents higher, at $106.71 a barrel, the highest since March 5.

ICE North Sea Brent crude for April settled at an 11-month high of $126.22 a barrel, up 88 cents. The spread between the two benchmark contracts at the settlement was $19.51 a barrel, the widest since Oct. 24, 2011. Brent had traded earlier to a record high in euro and sterling terms earlier in the day.

Brent's gains have been outpacing those of the U.S. benchmark as buyers look for alternatives to Iranian crude amid tightening sanctions.

The Europe Union is confident it can replace Iranian oil, including supplies from Saudi Arabia, when an embargo against Tehran starts July 1, the E.U.'s energy commissioner said Tuesday.

"We are very confident we can get enough oil, even in July, even in August," said Guenther Oettinger, at an oil producer-consumer Kuwait.

U.S. weekly oil data are expected to show crude-oil stocks increased last week while refiners kept operations steady. According to estimates from 10 analysts surveyed by Dow Jones Newswires, U.S. crude-oil inventories rose by 1 million barrels in the week ended March 9.

The closely watched government survey from the Energy Information Administration is due at 10:30 a.m. EDT Wednesday.

Gasoline stocks are expected to show a fall of 1.3 million barrels. Distillate stocks, comprising heating oil and diesel fuel, are expected to a drop of 1.5 million barrels.

April heating oil futures settled 2.83 cents higher, at $3.2712 a gallon, the most since March 1.

April reformulated gasoline blendstock futures settled 3.16 cent higher, at $3.3546 a gallon, the most since May 10, 2011.

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