Oil falls as Fed measures fail to boost risk assets

NEW YORK Thu Sep 22, 2011 1:56am IST

Motorists queue up for gas at a service station in Port of Spain August 24, 2011. REUTERS/Andrea De Silva/Files

Motorists queue up for gas at a service station in Port of Spain August 24, 2011.

Credit: Reuters/Andrea De Silva/Files

Related Topics

NEW YORK (Reuters) - Oil prices ended lower on Wednesday after the U.S. Federal Reserve said the economic outlook remained grim, which overshadowed an unexpectedly steep drop in crude supplies in the world's top oil consumer.

Brent for November delivery fell 18 cents a barrel to settle at $110.36, after topping $112 earlier. U.S. crude settled $1.00 lower at $85.92 a barrel after rising as high as $87.99.

Oil prices had risen in earlier trade after government data showed U.S. crude inventories last week dropped 7.3 million barrels, the biggest one-week drop since December, suggesting supplies were tighter than expected.

But the market turned bearish after the Fed said it would extend the maturity of its treasury holdings but didn't unveil more aggressive measures to boost a U.S. economy it said faces "significant downside risks".

The Fed plans to extend the maturity of its treasuries, buying $400 billion in long-term notes, while selling an equal amount of bonds maturing in three years or less by mid-2012, the central bank's market committee said.

The Fed said it discussed a variety of other "policy tools" it could use to promote stronger economic growth, but its statement stopped short of announcing any more measures.

Previous efforts by the Fed to stimulate a flagging U.S. economy have resulted in more buying of risk assets including commodities and equities, but some analysts said the Fed's latest plans aren't aggressive enough to warrant that.

"In lieu of a third round of quantitative easing, which could have boosted confidence .... the Fed implemented "Operation Twist," said Jason Schenker of Prestige Economics in Austin, Texas.

"The actual FOMC announcement contained no real stimulus."

The latest Fed package is an effort to tweak its $2.85 trillion balance sheet and put more downward pressure on long-term interest rates over time to help the battered U.S. housing sector and encourage more hiring.

But Fed policymakers said the labour market remained weak.

"Recent indicators point to continuing weakness in overall labour market conditions, and the unemployment rate remains elevated."

After the statement, major U.S. stock indexes fell further and the U.S. dollar trimmed losses against the euro.

"The dollar gained and that caused oil to slip. The market took it as bearish for oil. The language used to discuss the economy was not encouraging," said Chris Dillman, analyst at Tradition Energy in Connecticut.

(Additional reporting by Robert Gibbons and Janet McGurty in New York, and Alex Lawler and Simon Falush in London; Editing by Marguerita Choy)

FILED UNDER:

Politics

REUTERS SHOWCASE

Fund Raising

Fund Raising

Flipkart raises $700 million in fresh funding.   Full Article 

Reforms Push

Reforms Push

Modi may order insurance, coal reforms if vote delayed - officials.  Full Article 

Reuters Exclusive

Reuters Exclusive

India looks to sway Americans with nuclear power insurance plan  Full Article 

To Boost Growth

To Boost Growth

Crank up public spending to revive growth - chief economic adviser.   Full Article 

Bold Steps

Bold Steps

SpiceJet rescue plan marks bold bet on Indian aviation recovery.   Full Article 

New Airline

New Airline

Tata, Singapore Air venture Vistara to take off on Jan 9.  Full Article 

Online Sales

Online Sales

Knock knock. Who's there? Amazon's best-selling holiday author.  Full Article 

Hacking Attack

Hacking Attack

N.Korea says did not hack Sony, wants joint probe with U.S.  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage