Oil prices rise, dollar declines as Fed sticks to stimulus

NEW YORK - Crude oil futures on both sides of the Atlantic extended intraday gains on Wednesday after the U.S. central bank said it would leave its monetary stimulus program unchanged.

The U.S. Federal Reserve said it would continue to purchase US$85 billion in bonds per month fearing it could slow economic recovery if it let up on its fiscal stimulus.

"The FOMC's decision not to taper reflects the recent slowing in the economy, the lackluster employment gains, and the concerns over deflation," said John Kilduff, partner at Again Capital in New York. "Monetary support for assets, especially dollar denominated commodities will continue."

Oil prices had rallied earlier in the day after data showed U.S. crude oil inventories fell to their lowest level since March 2012. Supplies at the Cushing, Oklahoma, storage hub fell to their lowest level in 19 months as U.S. oil's discount to global benchmark Brent narrowed to its smallest point in a month, Reuters reported.

"That was a noticeable drop," said Michael Lynch, an oil analyst and president of consultancy Strategic Energy & Economic Research Inc in Winchester, Massachusetts.

Brent oil for November delivery traded at a high of US$110.15 per barrel after the Fed statement and was last trading US$1.58 higher at US$109.77 at 2:08 p.m. (:08 am Singapore time), after settling at a six-week low in the previous session.

The dollar declined to almost a three-month low after the announcement.

"The dollar is getting sold and weakening as a result of the Fed prolonging the current rate of asset purchases," Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York, said in a telephone interview with Bloomberg. "It was largely expected that they were going to announce tapering today. The fact that the markets didn't get that is reversing expectations."

The Bloomberg U.S. Dollar Index decreased 0.7 percent to 1,012.90, lowest since June 19. The greenback slipped 0.7 percent to $1.3448 per euro and fell 0.8 percent to 98.34 yen. Fed Chairman Ben S. Bernanke previously said he expected the central bank to complete its asset-purchase program in the middle of next year when the unemployment rate is around 7 percent, down from August's 7.3 percent.