Oil falls on big US crude inventory rise

Oil rebounded above $113 a barrel today after three straight days of falls

Oil fell $2 a barrel today, extending a retreat from a record high this week to more than 5% after a US government report showed crude oil stockpiles rose much more than expected in the world's top energy consumer.

The losses were limited late in the day, however, after the US Federal Reserve cut interest rates by a quarter points and indicated that it expects inflation to moderate a sign that more rate cuts are possible.

US crude settled down $2.17 at $113.46 a barrel, before recovering in electronic activity to $114.62 after the Federal rate cut decision. London Brent settled down $2.07 to $111.36 a barrel before recovering to $112.44.

Rate cuts can boost liquidity
Interest rate cuts can boost liquidity in the financial markets, brighten the outlook for economic activity and energy demand, and weaken the dollar against other currencies which tends to bolster commodity prices.

Oil prices had dropped steeply earlier in the day after the US Energy Information Administration said crude stocks increased by 3.8 million barrels, far more than the 300-
000 barrel increase analysts had expected.

Oil's losses followed a more than $3 slide yesterday when a rebound in the dollar and easing concern about supply disruptions from Nigeria to the North Sea pressured the market.

Despite the recent losses, oil prices remain about five times what they were in 2002, propelled higher by surging demand from China and other developing economies. – Reuters