Oil rallies on falling US reserves, before Fed rate call

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World oil prices rebounded on Wednesday, reversing earlier losses on news of falling gasoline inventories in the United States and ahead of the US central bank's interest rate call and outlook.

London Brent North Sea crude for August delivery jumped $2.34 to $113.29 a barrel in late afternoon London deals.

New York's main contract, West Texas Intermediate (WTI) light sweet crude for August, added 46 cents to $94.63 a barrel.

"Crude rallied following a supportive weekly (US) inventory report showing an encouraging jump in processing rates while gasoline (petrol) demand remains resilient with petrol stocks showing a surprise draw," said VTB Capital commodities analyst Andrey Kryuchenkov.

Gasoline stockpiles fell 500,000 barrels in the week ending June 17, the US government's Department of Energy (DoE) announced.

That confounded forecasts for a gain of 800,000 barrels, according to analysts polled by Dow Jones Newswires.

Gasoline figures are closely watched amid the peak-demand driving season in the United States, with many Americans hitting the road for their holidays.

Crude reserves sank 1.7 million barrels last week, much more than forecasts for a drop of 800,000 barrels and indicated strengthening demand.

The weekly report is a crucial focus for the the oil market because the United States is the world's biggest crude consuming nation.

The DoE added that distillates, which include diesel and heating fuel, rose 1.2 million barrels last week. Analysts had pencilled in a 500,000-barrel increase.

The data was published ahead of the US Federal Reserve announcement and a rare press conference by Fed chairman Ben Bernanke.

The Fed will announce the outcome of its two-day monetary policy meeting at 1630 GMT and will also publish its latest estimates on economic growth, unemployment and inflation.

"Today's focus will be on the Federal Reserve's meeting," Commerzbank commodities analyst Carsten Fritsch said.

"The likely downward revision of the assessment of the economy could weigh on oil prices. However, as the ultra-loose monetary policy will probably be maintained, the negative impact on oil prices should be limited. We therefore do not expect prices to drop under the $110-a-barrel mark."

Fed policymakers are meeting amid signs of weakness in the world's biggest economy that are clouding prospects for withdrawal from a massive financial stimulus that the central bank has provided since the 2008 financial meltdown.

Meanwhile, the oil market drew limited support from news that Greek Prime Minister George Papandreou's government survived a confidence vote earlier on Wednesday.

The administration carried a confidence vote through parliament to pursue critical reforms needed to unlock vital new assistance from its international creditors.

In recent days and weeks, the Greek-eurozone debt crisis had prompted deep concern that it could undercut the economy and so sap energy demand from Europe.


© 2011 AFP

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