Oil prices rose sharply on Wednesday, with Brent crude pushing toward $110 a barrel after the U.S. Federal Reserve announced plans for more monetary stimulus, while a Texas refinery fire lifted refined product futures.
The Fed's announcement overshadowed a decision by the Organization of the Petroleum Exporting Countries (OPEC) to leave its output targets unchanged, despite estimates indicating demand for its crude will be lower next year in the face of rising shale oil output in the United States.
Further support came from the International Energy Agency, which revised its estimate of global oil demand substantially higher for the last three months of this year, and also said consumption would be stronger than previously forecast in 2013.
"We were expecting the IEA to revise demand lower for next year in this morning's report, so the fact that they didn't was taken as a bullish signal," said Andy Lebow, vice president at Jefferies Bache in New York, though he cautioned that overall demand for OPEC's crude would still be lower in 2013 than 2012.
The Brent crude oil contract for January delivery, which expires on Friday, rose $1.49 to settle at $109.50 a barrel, having swung from $108.14 to $110.50.
Brent crude is on course to average around $112 a barrel this year, the highest level on record, and slightly above last year's then-record average of $110.91.
On Wednesday U.S. crude closed up 98 cents at $86.77 a barrel, having reached $87.68. U.S. crude has lost around 12 percent since the start of the year.
FED STIMULUS BOOST OVERSHADOWS OPEC
Analysts said riskier assets such as oil and equities were boosted by the Fed's plans to ramp up stimulus for the world's largest economy. U.S. equities rose to a seven-week high after the Fed committed to monthly purchases of $45 billion in Treasuries on top of the $40 billion per month in mortgage-backed bonds it started buying in September.
The central bank also said it will keep its near-zero interest-rate program in place until the U.S. unemployment rate falls to 6.5 percent from its current 7.7 percent, the first time it has offered a hard target for when it will start to shift policy.
In Vienna, OPEC ministers agreed to retain the producer group's 30-million barrel-a-day output target and meet next on May 31, but many market observers think supply restrictions will be needed next year if they want to stop rising inventories from weighing on prices.
That burden will likely fall to Saudi Arabia, the world's largest exporter, though Riyadh is likely to push for Iraq to contribute to any cutbacks now it has overtaken sanction-hit Iran as the group's second largest producer.
Iraq has indicated it will fiercely resist any attempts to make it curtail its output as it finally starts to recover after 20 years of war.
The International Energy Agency said in its monthly oil market report that global oil demand would grow by 865,000 barrels per day in 2013 to hit 90.5 million bpd, but that would be more than met by growing output from countries not in the producer group.
REFINERY FIRE AND US INVENTORY REPORT
U.S. heating oil and gasoline futures received a lift from news of a fire at Motiva's refinery in Port Arthur, Texas, the largest in the United States. The joint-venture between Shell and Saudi Aramco aborted a restart of its 350,000 barrel per day (bpd) crude unit after a fractured pipe caused a fire overnight.
Crude oil stockpiles rose 843,000 barrels in the week to Dec. 7, the U.S. Energy Information Administration said in a report on Wednesday. An inventory slide of 2.3 million barrels was forecast in a Reuters survey of analysts.
Distillate stockpiles, which include heating oil and diesel, gained 2.99 million barrels, the EIA said, compared with expectations stocks would be up 1.4 million barrels.
Gasoline inventories rose 5 million barrels, against a forecast for a build of 2.2 million barrels.
"The report is uniformly bearish with the large refined product inventory increases, along with the rise in crude oil storage," said John Kilduff, partner at Again Capital LLC in New York.
Heating oil futures rose 1.4 percent to near $2.97 a gallon, while RBOB gasoline futures were up by a similar amount to near $2.65 a gallon. (Additional reporting by Robert Gibbons in New York,; Claire Milhench and Shadia Nasralla in London, Amena Bakr and Peg Mackey in Vienna, and Florence Tan in Singapore; Editing by Alden Bentley)