Oil prices fell slightly today as the dollar strengthened against the euro on a smaller-than-anticipated interest-rate cut from the U.S. Federal Reserve.
Light, sweet crude for June delivery fell 21 cents to $113.25 a barrel in electronic trading on the New York Mercantile Exchange by early afternoon in Europe.
The contract fell $2.17 on Wednesday to settle at $113.46 a barrel after the U.S. government reported that crude inventories rose more than expected last week.
In London, Brent crude futures were down 29 cents to $111.07 a barrel on the ICE Futures exchange.
The Fed said Wednesday it would cut the federal funds rate by a quarter percentage point to 2 percent.
The 15-nation currency bought $1.5475 in Europe, down from the $1.5642 it purchased in New York late Wednesday.
“The full direction for the dollar will, however, likely wait for (Friday) … because many European countries are on bank holiday,” said Olivier Jakob of Petromatrix in a research note, referring to Labor Day or Ascension Day celebrations across the continent.
Interest rate cuts tend to weaken the dollar, and investors buy commodities such as oil as a hedge against inflation when the greenback falls. A weaker dollar also makes oil cheaper for overseas buyers.
But the quarter-point cut was smaller than those of recent months, suggesting the central bank might pause to see if months of powerful rate-cutting medicine and billions of dollars in stimulus checks will be enough to lift the U.S. economy out of its slump.
Oil prices fell Wednesday after the government reported a surprisingly large jump in crude oil and distillate fuel inventories last week.
In its weekly inventory report, the Energy Department’s Energy Information Administration said crude oil inventories rose 3.8 million barrels, more than double the increase analysts surveyed by energy research firm Platts had expected.
Inventories of distillates, which include heating oil and diesel fuel, rose 1.1 million barrels, more than seven times the expected increase.
Investors shrugged off a 1.5 million barrel decline in gasoline inventories. In part, that’s because despite the drop, supplies of gasoline remain high for this time of year. Also, demand for gasoline fell slightly over the last four weeks, on average, compared with the same period last year, EIA data show.
In other Nymex trading, June heating oil futures fell 0.32 cent to $3.1548 a gallon while gasoline prices gained 0.29 cent to $2.9092 a gallon.
Natural gas futures added 5.4 cents to $10.897 per 1,000 cubic feet.
Associated Press writer Gillian Wong in Singapore contributed to this report.
