Oil Prices Back on Track to Rise After Def Pledges Low Rate to 2013

On Wednesday, the steep fall in oil prices came to an end after the U.S. Federal Reserve promised to extend near-zero interest rates for two more years.

On Tuesday, oil prices tumbled below $79 per barrel to its lowest level since September 2010 on the New York Mercantile Exchange. This was before the Fed statement about interest rates surfaced. However, after the news came out investors took a sigh of relief and the broader U.S. equity market jumped almost 4 percent to close above 11,200 points.

In London, Brent crude was up 4.06 percent to $106.73 per barrel on the ICE Futures Exchange. The benchmark oil for September delivery number was up 3.24, or 4.09 percent, to $82.54 per barrel on Wednesday in electronic trading on the New York Mercantile Exchange.

A report showing an unexpected decline in U.S. crude supplies also helped push oil prices higher.

The American Petroleum Institute said late Tuesday that crude inventories fell to 5.2 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 1.8 million barrels. Inventories of gasoline dropped 1.0 million barrels last week while distillates decreased 600,000 barrels, the API said.

However, some analysts have warned that prices could moderate later in the week as attention again focuses on the prospect of economic growth. "The impact of the Fed move will likely fade by week's end," MF Global analysts wrote in a note. "The Fed's move to keep rates depressed for so long is likely because the central bank realizes that growth will be tepid for some time to come. This scenario does not bode well for commodities, especially base metals and energy."

Analysts also expect crude to fall further as consumer demand falters amid muted economic growth in developed countries. "The global economic dynamics that set this sharp oil price decline into motion a few weeks ago remain very much intact and capable of forcing a price decline into the $70 to 75 zone," energy consultant Ritterbusch and Associates said in a report. "The main theme behind the oil trade of the past month remains one in which heightened economic uncertainties mainly related to Europe and the U.S. are bringing into clearer focus a significant downdraft in oil demand."

Just as oil prices started to move higher today, many of oil and gas company shares are also expected to trade heavily once the market opens Wednesday. Exxon Mobil Corp. (NYSE: XOM) shares were trading lower by 0.47 percent to $71.30 in pre-market trading today. ConocoPhillips last traded at $64.56, up 4.26 percent, and Chevron Corp. (NYSE: CVX) last traded at $93.40, up 3.49 percent, on Tuesday.

As oil prices move higher, the pressure on the U.S. dollar was seen on Wednesday. The dollar was trading lower against the euro at $1.4356 per euro, and 76.5250 yen for a dollar, lower by 0.93 percent.

The rebound in crude oil prices helped investors brush off a drop in July implied crude imports by China.

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