NEW YORK, 26 June 2003 — Oil prices surged more than a dollar yesterday after the US government showed an unexpected drop in already tight fuel inventories. US light sweet crude jumped $1.17 to $29.95 a barrel, ending a run of losses that had sliced over $3 from 12-week highs hit earlier this month. Benchmark Brent crude rose $1.04 to $27.66 per barrel.
Prices raced up after the Energy Information Administration said US crude stocks fell 4.1 million barrels to 284.2 million barrels, 11 percent lower than a year ago. Analysts predicted stocks would rise by 1.1 million barrels. Leading OPEC producer Saudi Arabia and other members of the OPEC group cut back production this month, while a three month halt to exports from Iraq has further tightened supply.
Meanwhile, stocks gave up some gains yesterday and blue chips turned negative as the market was disappointed by the Federal Reserve’s decision to cut interest rates by only a quarter percentage point and rattled by the Fed’s warning of possible deflation.
After the central bank’s rate-setting Federal Open Market Committee trimmed the bellwether federal funds rate to 1 percent, a low not seen since 1958, the Fed announced it was ready to cut the cost of borrowing even more if the risk of falling prices worsened.
European stocks closed higher yesterday before the Federal Reserve cut interest rates by only a modest quarter-point, which could disappoint investors on the continent when trading resumes today. “I think stocks are going to be disappointed on the back of this as they were looking for a 50-basis-point cut to have a firebreak against deflation,” said David Brown, chief European economist at Bear Stearns investment bank.
European bourses shut before the Fed announced its decision, with the pan-European FTSE Eurotop ending up 0.25 percent at 859.85 points, while the narrower DJ Euro Stoxx index traded up 0.28 percent at 2,453.73 points. The Eurotop 300, which rose to its best level since early January last week after gaining nearly 30 percent from a six-year low in mid-March, has lost upside momentum amid fear the market has outpaced economic fundamentals.