Crude Oil Follows Equities Lower After Fed Cuts Interest Rates

By Margot Habiby and Mark Shenk

Jan. 31 (Bloomberg) -- Crude oil fell for the first time in six days as U.S. stocks declined after the Federal Reserve cut its benchmark interest rate to bolster the economy of the world's biggest energy-consuming country.

Oil gained the past five sessions in anticipation of the Fed reducing interest rates by half a percentage point to 3 percent. The move yesterday, coupled with the Jan. 22 emergency cut of three-quarters of a point, is the fastest easing of monetary policy since 1990.

``The market has rallied in both equities and oil over the past few days on the assumption that we were going to get a 50 basis point cut,'' said Jeff Spittel, an analyst at Natixis Bleichroeder Inc. in Houston. ``We got it, and I think there are people trying to square off positions.''

Crude oil for March delivery dropped as much as $1.28, or 1.4 percent, to $91.05 a barrel in after-hours trading on the New York Mercantile Exchange. It was at $91.16 at 8:15 a.m. in Singapore.

The contract rose 69 cents, or 0.8 percent, to $92.33 yesterday, the highest settlement since Jan. 14. Prices slumped in later trading with share prices gave up their gains.

U.S. stocks fell for the first time this week on concern that bond insurers guaranteeing $2.4 trillion in securities will lose AAA credit ratings. The Standard & Poor's 500 index fell 6.49, or 0.5 percent, to 1,355.81 and is down 7.7 percent this year. The Dow Jones Industrial Average lost 37.47, or 0.3 percent, to 12,442.83.

Economy

``The bottom-line is that people are worried about the economy,'' said Mark Waggoner, president of Excel Futures Inc. in Huntington Beach, California. The Fed ``is probably going to have to lower rates again'' and that will push the dollar lower and hold oil in a trading range $86 and $95, he said.

Brent crude for March settlement yesterday rose 53 cents, or 0.6 percent, to $92.53 a barrel on London's ICE Futures Europe exchange yesterday, the highest close since Jan. 14.

A U.S. Energy Department report yesterday showed that oil stockpiles rose a for a third time last week, and by more than analysts expected. Gasoline stockpiles increased for a 12th week.

Refineries operated at 85 percent of capacity, the lowest since March 2006, according to the department.

``You're probably going to see more builds from here but that's because refinery runs are coming down and that's because of normal seasonal maintenance,'' Excel's Waggoner said. ``Imports are high and demand is still pretty strong.''

The Organization of Petroleum Exporting Countries will keep its output target unchanged at 29.67 million barrels a day when it meets in Vienna tomorrow, according to 29 of 32 analysts surveyed between Jan. 24 and 28 by Bloomberg News. The 13-member group produces more than 40 percent of the world's oil.

``The world has sufficient supply, even oversupplied in some places,'' Qatar's Abdullah bin Hamad al-Attiyah said in a Bloomberg Television interview in Doha yesterday. ``So to increase, I don't think this is on the agenda.''