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Dec. 18 (Bloomberg) -- West Texas Intermediate crude rose after the Federal Reserve said it will begin reducing the pace of stimulus and raised its assessment of the job market.
Futures climbed 0.6 percent. The central bank announced plans to cut its monthly bond purchases to $75 billion from $85 billion. Fed officials forecast the unemployment rate will fall as low as 6.3 percent by the end of next year, compared with a September projection of 6.4 percent to 6.8 percent. U.S. crude stockpiles slipped 2.94 million barrels last week, according to an Energy Information Administration report today.
“The tapering announcement speaks to confidence in a stronger economy, which is what will underpin increasing energy demand next year,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The economic data set of late has pointed to further growth, which gave the Fed the cover to cut back on stimulus.”
WTI for January delivery rose 58 cents to close at $97.80 a barrel on the New York Mercantile Exchange. It was the highest settlement since Dec. 10. The volume of all futures traded was 9.7 percent below the 100-day average at 3:42 p.m.
Brent oil for February settlement gained $1.19, or 1.1 percent, to end the session at $109.63 a barrel on the London- based ICE Futures Europe exchange. The volume of all futures traded was 23 percent lower than the 100-day average.
The European benchmark crude closed at a $11.57 premium to WTI contract for the same month, up from $10.78 yesterday. The spread widened to $19.38 during trading on Nov. 27, the most since March.
Most Federal Open Market Committee participants reiterated their view that the Fed will refrain from raising the benchmark interest rate until 2015.
“The Fed’s being comfortable with tapering says something very positive about demand,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $110 billion of assets.
Economists were divided on whether the FOMC would begin tapering bond purchases today. Thirty-four percent of economists in a Dec. 6 Bloomberg survey said the Fed would act at today’s meeting. Twenty-six percent predicted a January taper and 40 percent said March.
“It’s a bullish sentiment overall given the whole premise of the taper is that it would indicate the Fed is comfortable with the economic recovery,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania.
U.S. crude inventories dropped to 372.3 million barrels, bringing the three-week decrease to 19.1 million, according to the EIA, the Energy Department’s statistical arm. Supplies at Cushing, Oklahoma, the delivery point for WTI traded in New York, declined 600,000 barrels to 40.6 million, the biggest slide in three months, the report showed.
Crude production slipped 17,000 barrels a day to 8.06 million. Output surged to the most since 1988 this year as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations.
Refineries operated at 91.5 percent of capacity, down 1.1 percentage points from the prior week, when the rate was the highest level since July.
Supplies of distillate fuel fell 2.11 million barrels to 116 million, the report showed. Inventories were projected to be unchanged according to the median of analyst responses.
“The report was modestly friendly for the market,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The distillate number was the most bullish part of the report.”
Ultra low sulfur diesel futures for January delivery rose 4.72 cents, or 1.6 percent, to end the session at $3.0101 a gallon in New York. Gasoline climbed 5.01 cents, or 1.9 percent, to settle at $2.6973 a gallon on the Nymex.
Gasoline stockpiles gained 1.34 million barrels to 220.5 million, the highest level since the week ended Aug. 9, according to EIA data.
Implied volatility for at-the-money WTI options expiring in February was 15.5 percent, down from 16 yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 456,741 contracts at 3:42 p.m. It totaled 399,663 contracts yesterday, 30 percent above the three-month average. Open interest was 1.63 million contracts.
--With assistance from Naureen S. Malik in New York. Editors: Margot Habiby, Dan Stets