Oil smashes $94 barrier on Fed rate cut, tight US supply

Oil prices hit fresh record highs on Wednesday, with New York crude topping $94, after the Federal Reserve lowered interest rates and news of a surprise decline in US crude stocks. New York's main futures contract, light sweet crude for delivery in December, soared $4.15 to a record closing high of $94.53 a barrel, demolishing Monday's record of $93.80. The New York contract earlier soared to a new intraday peak of $94.74. In London, Brent North Sea crude for December delivery jumped $3.19 to settle at $90.63 a barrel, also setting an intraday all-time high, at $90.94. Oil prices were boosted by the US Federal Reserve's decision to lower its base federal funds rate by a quarter of a percentage point to 4.50 per cent. The rate cut pushed the euro above $1.45 for the first time, hitting 1.4504 dollars nearly an hour after the Fed's announcement. It had traded at $1.4441 in New York late Tuesday. A weak US unit encourages oil demand because it makes dollar-priced commodities cheaper for buyers using stronger currencies. Oil futures also were underpinned by the US Department of Energy's (DoE) weekly snapshot of energy reserves. The DoE announced Wednesday that crude inventories tumbled by 3.9 million barrels to stand at 312.7 million barrels in the week ended October 26. That shocked the market because consensus forecasts had been for a gain of 400,000 barrels in the reserves of the world's biggest energy consumer. "The market is clearly reacting to the larger-than-expected drop in crude oil inventories," said Citigroup analyst Tim Evans. Meanwhile, the market shook off the DoE data on US distillates, which include diesel and heating fuel, that showed a gain of 800,000 barrels; the market had expected a drop of one million barrels. The oil market this week has been rocked by volatile trading linked to worries about tight global energy supplies. After striking record levels on Monday, prices plunged by around $3 on Tuesday as traders took profits. However, news of dwindling US crude reserves sent prices rocketing. The volatile price action "reflects current trading conditions characterized by market participants (being) prone to test new highs but still uneasy over the sustainability of the progress made," said Kevin Norrish at Barclays Capital. "In this context, volatility is set to stay high and prices will likely react sharply on the back of little fresh news."