Oil ends up but pares gains after Fed statement

Wed Aug 1, 2012 5:02pm EDT
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By Gene Ramos

NEW YORK (Reuters) - Oil futures ended up but off its highs in choppy trading on Wednesday after the U.S. Federal Reserve said the economy had lost some momentum but offered no new stimulus that could shore up growth and translate into higher fuel demand.

Even as data showing a bigger-than expected drop in U.S. crude stockpiles last week added support, the initial downward reaction to the Fed's statement following its two-day policy meeting was sharp. Many investors had anticipated a much stronger stance from the Fed's policymakers, but with the European Central Bank meeting on Thursday, investors were cautious in trimming long positions too much, analysts said.

"Crude oil prices are adjusting as the Fed did not announce any new stimulus," said Dominick Chirichella, senior partner at Energy Management Institute in New York.

"Now investors will wait for the ECB meeting tomorrow and see what its president, Mario Draghi, will say," he added.

In its statement, the Fed said the U.S. economy has "decelerated somewhat," a change of tone from its assessment in June that the economy had been "expanding moderately.

While it offered no new monetary stimulus, the Fed signalled further bond buying ahead to keep the economic recovery going.

In London, Brent crude settled at $105.96 a barrel, gaining $1.04, after hitting a session high of $106.92. The day's gain followed two days of declines, although Brent ended July up more than 7 percent from June.

U.S. crude settled at $88.91, gaining 85 cents, having turned slightly negative after the Fed statement. Before that it had hit the day's high of $89.47. The advance followed two days of losses, even though U.S. crude ended more than 3 percent higher for the month of July.   Continued...

An employee holds a gas pump at a gas station of Hyundai Oilbank in Seoul June 15, 2012. REUTERS/Choi Dae-woong