London: Oil prices bounced higher on Wednesday after two days of losses as the dollar fell to 10-week lows ahead of a US Federal Reserve statement expected to focus on positive economic prospects for the world’s top oil consumer.
The Fed is expected to underscore reasons for optimism even as it reaffirms its economic stimulus plan to buy $600 billion in government debt in its statement later on Wednesday.
Brent crude futures on ICE led the rally, rising by $1.24 to $96.49 a barrel and lifting its premium to the US crude benchmark to near $10. US crude was up 62 cents at $86.81 a barrel by the same time.
“The market is looking forward to the Fed decision and there’s been a tiny pull-back in the dollar so there’s a small rebound higher,” said analyst Andrey Kryuchenkov of VTB Capital.
The dollar fell to 10-week low against a basket of currencies on Wednesday and helped prod oil prices higher since it makes commodities cheaper for non-dollar buyers.
European shares rose on Wednesday in a move that also helped to lift sentiment on the oil market. The rally on crude futures came despite a more-than-expected 2.1-million-barrel rise in US crude oil stockpiles last week, according to the American Petroleum Institute.
But this bearish news was tempered by a steep five million-barrel draw in distillate stocks after prolonged period of freezing conditions in the US northeast heating hub.
The Energy Information Administration (EIA) is expected to publish its closely watched data on US oil stocks late on Wednesday.
The two oil benchmarks are now around 3-6% below January peaks when prices touched more than two-year highs and sent off alarm bells that oil prices would surge through the $100 a barrel milestone.
The Brent front month rose to within 80 cents of $100 a barrel on 14 January.
Analysts at Credit Agricole CIB and Facts Global Energy said that the immediate risk of a breach of $100 has now receded with prices likely to trend lower through the first quarter.
“I think the fall is justified by the disappearance of very cold weather in Europe and the restart of the Alaskan pipeline as well as signs that the Organization of Petroleum Exporting Countries is increasing production,” said analyst Christophe Barret at Credit Agricole.
Freezing conditions in Europe in December have led to draws in distillate stocks used for heating but temperatures have since turned milder.
Worries that inflation could prompt more interest rate hikes in emerging markets has also dampened expectations for future demand growth, which the International Energy Agency already predicts to rise at only about half the pace as last year.
Technical charts show that US crude prices have already fallen below their 50-day moving average and some analysts expect it to fall further to $81-$82 a barrel.
Florence Tan in Singapore contributed to this story.