A “build” and a “Twist” knocked oil prices to the floor on Wednesday.
In the morning, the government announced a surprise increase, or build, in U.S. oil supplies. That told investors that America has a bounty of crude and less need to import more from foreign countries. Then the Federal Reserve extended an interest-rate reduction program known as Operation Twist, but declined to take more aggressive steps to boost the economy.Together, they sent the price of oil to a nine-month low.
Benchmark U.S. crude dropped $2.23, or 2.7 percent, to end the day at $81.80 per barrel in New York. That’s the lowest level since October. Brent crude, which is used to price much of the oil imported into the U.S., lost $3.07 to finish at $92.69 per barrel in London. That’s Brent’s lowest finish since December 2010.
Wednesday’s drop was among the biggest in a nearly two-month swoon that has slashes 23 percent off the price of oil.
The Energy Information Administration said oil supplies grew by 2.9 million barrels last week. That surprised analysts who had expected a decline of 600,000 barrels. Oil supplies have risen this year to the highest level since 1990, thanks to a boom in North American production.
“The U.S. is flush with oil right now,” independent analyst and trader Stephen Schork said. “And if you factor in the economic mess in Europe, slower economic growth in China, and probably overproduction from the Saudis in preparation for the Iranian oil embargo, the world has a comfortable supply” of oil.
Oil prices fell further after the Federal Reserve sharply lowered its outlook for the U.S. economy at the conclusion of a two-day policy meeting. The Fed also predicted that the unemployment rate, now 8.2 percent, probably won’t fall much further this year.In hopes of sparking borrowing and spending by consumers and businesses, the Fed said it would continue its program designed to lower long-term interest rates. Under Operation Twist, the Fed will sell $267 billion of short-term Treasurys and buy longer-term Treasurys through December.