Oil pares gains after Fed raises discount rate

By Rebekah Kebede

NEW YORK (BestGrowthStock) – Oil pared gains in late Thursday trade after the U.S. Federal Reserve announced it was raising the interest rate it charges banks for emergency loans.

The Fed said it was raising the discount rate to 0.75 percent from 0.50 percent, citing improvement in financial market conditions, sending U.S. stock markets lower on concerns about thinning liquidity.

Analysts said the move could drive some investors out of oil, especially those who were invested in passive, long only oil and commodity vehicles.

“The people who are going to be affected are the big investors who have positions in index funds and exchange traded funds, they may liquidate long position if they now seeing that the inevitable climb in interest rates has already started,” said Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut.

U.S. crude oil futures traded up $1.05 to $78.38 a barrel in electronic trade at 5:13 p.m. (2213 GMT), after earlier settling up $1.73 at $79.06, the highest settlement since January 14.

Brent crude gained $1.51 to settle at $77.78 a barrel, later trading down to $77.18 after the Fed announcement.

Earlier, crude prices were bolstered by a government report showing a drop in U.S. distillate supplies and concerns OPEC member Iran may be working to develop a nuclear-armed missile.

U.S. distillate inventories fell by 2.9 million barrels last week, according to weekly data from the U.S. Energy Information Administration, nearly double the 1.5 million barrel draw forecast by analysts.

“The bottom line is that the Department of Energy report had a number of little kernels of bullish information, starting with the distillate draw being larger than expected,” said Cameron Hanover’s Beutel.

Heating oil stocks fell 1.4 million barrels as chilly weather on the Eastern Seaboard increased demand for the fuel, the EIA data showed. Crude oil and gasoline inventories rose 3.1 million barrels and 1.7 million barrels, respectively, above analysts’ expectations.

Gasoline futures led the NYMEX oil complex.

“There is also the seasonal factor in that people are looking at the upcoming driving season, and that’s helping boost gasoline,” said Richard Ilczyszyn, senior market strategist, at Lind-Waldock in Chicago.

The market was also watching news that the U.N. nuclear watchdog fears Iran may be working now to develop a nuclear-armed missile, throwing independent weight behind Western suspicions of an active Iranian weapons program and stirring concerns about a potential supply disruption from the oil-exporting nation.

Oil prices were also supported by news that workers at Total’s (TOTF.PA: ) six French oil refineries extended their strike action into a second day on Thursday, protesting the potential permanent closure of one of the plants.

Workers plan to halt production at five other refineries in the next 24 hours, sources told Reuters. Total is a major European gasoline exporter to the United States.

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(Additional reporting by Robert Gibbons and Gene Ramos in New York, Ikuko Kurahone in London, Seng Li Peng in Singapore; Editing by Marguerita Choy and Jim Marshall)

Oil pares gains after Fed raises discount rate