Crude Falls After Fed Suggests 2013 End to Stimulus

Crude futures settled slightly lower Thursday after Federal Reserve minutes suggested the central bank could end its stimulus program sooner than expected.

U.S. crude futures, which had been trading narrowly in positive territory prior to the 2 p.m. EST release of the minutes, settled at $92.92, down 20 cents, or 0.2%.

Analysts consider the Fed's bond-buying program to be a key component in enabling high oil prices to persist. The bond purchases strengthen oil by boosting economic demand and weakening the U.S. dollar. Crude is traded in dollars.

Fed officials have broadly signaled that they planned to keep the asset purchases going for the foreseeable future. But minutes of the Dec. 11-12 policy meeting released Thursday showed they are considering ending the program in 2013.

"A few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013," the minutes said. A few others called broadly for "considerable policy accommodation," while several others "thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013." The minutes also held out midyear as a possible end-point.

The minutes were a "blind side" the market because it raises the possibility that "the QE eternity could end," said Phil Flynn an analyst at the Price Futures Group in Chicago.

"We were getting the message that the Federal Reserve was going to print money until the end of time," Mr. Flynn added.

U.S. crude futures had been trading in a choppy fashion earlier Thursday, veering in and out of positive territory. Traders had been unwilling to make large bets prior to some major news events Friday: the release of a weekly oil inventory report and the release of monthly nonfarm payrolls data.

The American Petroleum Institute, an industry group, said Tuesday afternoon that crude oil inventories fell by 12 million barrels last week. API also said that stocks of gasoline rose by 3.3 million barrels, while stocks of distillates, a category that includes heating oil and diesel, rose by 6.7 million barrels. Refinery utilization fell 1.1% to 90.5%, API said.

But throughout trading Thursday, the U.S. benchmark outpaced the performance of the European benchmark, Brent oil futures, which settled Thursday at $112.14, down 33 cents or 0.3%.

The reason was confirmation from the much-watched Seaway pipeline that the project was on track to expand its capacity by the end of next week. The Seaway pipeline has been seen as critical to narrowing the spread between Brent and U.S. benchmark West Texas intermediate, which has widened to historic levels.

Seaway said in a news release late Wednesday that the planned expansion of the line from 150,000 barrels a day to 400,000 barrels a day would be complete by the end of next week. The expansion will allow larger volumes of crude to move from Cushing, Okla., to Gulf Coast refineries.

The expansion is seen as critical to alleviating a glut of oil at the U.S. trading hub of Cushing, where oil supplies have reached record levels. Kyle Cooper, analyst at IAF Advisors, said the spread between the two crude benchmarks should tighten further, although he noted that U.S. demand for crude remains very "tepid."

Front-month reformulated gasoline blendstock, or RBOB, settled at $2.798 a gallon, up 0.2 cent. Heating oil settled at $3.025 a gallon, down 2.1 cents.


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