Oil Closes at Record Over $94 After Rate Cut

Oil surged to a record close over $94 a barrel after the Federal Reserve cut two key interest rates and U.S. oil supplies showed an unexpected decline for the week.

Oil Barrels
Oil Barrels

U.S. light, sweet crude futures climbed from lows of $88.92, on top of a $4 slide in the previous session.

London Brent crude gained $2.49 to $89.93.

U.S. crude oil stocks fell 3.9 million barrels in the week to Oct. 26, government data showed, countering expectations for a build ahead of the Northern Hemisphere winter.

The draw was led by a huge tumble in stockpiles at the Cushing, Okla., delivery point for the NYMEX oil contract as companies drained storage tanks.

"Given the economics of what it takes to store oil, it makes no sense to hold onto inventory right now," said Stephen Schork, president of The Schork Report.

"Storage owners are taking the economically prudent step and dumping inventories."

Retail heating oil prices in top oil consumer the United States shot to a record $2.95 a gallon last week on the winter supply worries.

Further support after the Fed lowered two key interest rates by a quarter of a point to bolster the U.S. economy.

Despite the battered housing sector, the U.S. economy grew at a surprisingly brisk clip in the third quarter boosted by strong consumer spending and brisk exports, the government said Wednesday.

Rate cuts by the Fed have added liquidity to financial markets by making it cheaper to borrow. Analysts say some of the extra cash has been drawn to energy markets and contributed to oil's record rally.

The price increase has spurred U.S. government officials to call on OPEC to increase output, but cartel officials maintain speculative buying has driven up prices -- not a supply shortage.

"OPEC is not very happy with the existing situation that shows a lack of stability in world oil markets," Javad Yarjani, head of OPEC affairs at Iran's Oil Ministry, was quoted as saying.

He warned that geopolitical concerns had created a "bubble" in oil prices which would burst one day.