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Oil prices finish higher as U.S. supplies fall a third straight week

Oil futures finished higher Wednesday, buoyed by a third straight weekly decline in U.S. crude supplies and a drop in distillate stocks, after a price plunge a day earlier pushed the U.S. benchmark down to its lowest finish in nearly 16 months.

January West Texas Intermediate crude CLF9, +3.72% CLF9, +3.72% rose 96 cents, or 2.1%, to settle at $47.20 a barrel on the New York Mercantile Exchange after a high of $48, with the contract paring some of its earlier gains after the Federal Reserve announced its decision Wednesday to raise a key interest rate, as expected.

The contract settled at $46.24 a barrel on Tuesday, the lowest finish for a front-month contract since Aug. 30, 2017, according to Dow Jones Market Data. The January futures contract expired at the day’s settlement. February WTI crude CLG9, -2.35% which is now the front-month contract, settled at $48.17, up $1.57, or 3.4%.

Meanwhile, February Brent LCOG9, -1.85% the global benchmark, added 98 cents, or 1.7%, to $57.42 a barrel on ICE Futures Europe. It tumbled 5.6% to $56.26 Tuesday, for the lowest finish since October 12, 2017.

The Energy Information Administration reported Wednesday that domestic crude supplies fell by 500,000 barrels for the week ended Dec. 14. Analysts polled by S&P Global Platts expected a larger decline of 3 million barrels in crude supplies, but the American Petroleum Institute on Tuesday reported a climb of 3.5 million barrels.

Gasoline stockpiles rose by 1.8 million barrels last week, while distillate stockpiles, which include heating oil, dropped 4.2 million barrels, according to the EIA. The S&P Global Platts survey had shown expectations for supply increase of 2.6 million barrels for gasoline and a fall of 900,000 barrels for distillate inventories.

“The draw to distillate inventories means they are now more than 14% lower since mid-September, providing the biggest bullish element” of the report, said Matt Smith, director of commodity research at ClipperData.

On Nymex, January gasoline RBF9, -1.79%  finished up 2.7% at $1.386 a gallon, while January heating oil HOF9, -1.05%  rose 2.9% to $1.805 a gallon.

Crude stockpiles showed “a smaller draw than expected,” and there was another large build at Cushing, Okla. trading hub, said Tariq Zahir, managing member at Tyche Capital Advisors.

He expected attention to turn to the Federal Reserve policy decision, which was announced about a half hour before Nymex crude prices settled Wednesday.

The Federal Reserve hiked its target for the federal funds rate by a quarter point to a range between 2.25% and 2.5%, while the median projection of next year’s rate increases was lowered to two from three.

Benchmark U.S. stock indexes fell during Fed Chairman Jerome Powell’s press conference. “Initial reaction does not look good for overall markets,” said Zahir after the Fed announcement. There’s “risk of a washout to the downside, which would hurt crude.”

Continued market tensions over a potential global supply glut rattled traders Tuesday after market analysts noted reports that Russia was increasing its output to 11.42 million barrels a day this month. That raised some speculation that major players may advance their own interests even as members of the Organization of the Petroleum Exporting Countries and nonmember allies agreed earlier this month to cut production by 1.2 million barrels a day. That change is scheduled to go into effect in January.

Tuesday’s declines extended a price rout that has seen Brent lose nearly 35% and WTI nearly 40% since reaching four-year peak at the start of October.

Rounding out action on Nymex, prices for natural gas continued to see volatile trading, with January natural gas NGF19, -0.32%  losing 2.9% to $3.726 per million British thermal units. The contract rallied by 8.8% on Tuesday after a sharp Monday decline built on last week’s losses—all seen amid forecasts for warmer-than-normal to normal temperatures, which imply less demand for the heating fuel.