Oil prices gain as Fed sticks to stimulus path

A barrel of light, sweet crude for March delivery finished at $87.33, $1.14 higher than Tuesday's close.

In London, a barrel of North Sea Brent crude rose $2.66 to settle at $97.91.

The price rises came as the Federal Reserve's policy-setting Federal Open Market Committee decided to hold its key interest rate at zero to 0.25 per cent, citing the continued softness of the US economic recovery.

The FOMC also reiterated commitment to its "quantitative easing" program which is putting billions of dollars into the economy through purchases of government bonds to stimulate further growth.

Traders in London and New York shrugged off an earlier US government report Wednesday report that showed the nation's crude oil stockpiles had risen for the second straight week, by a larger-than-expected margin.

"The bears are pulling out with a profit, and new investors are coming into the market," explained Rich Ilczyszyn of Lind-Waldock.

"You’ve got technical reasons getting the buyers involved, and then you have got the statement of the Fed."

"The quantitative easing is still on the table."

Nevertheless the large increase in US crude stocks surprised analysts.

The US Department of Energy (DoE) said crude inventories jumped 4.8 million barrels in the week ending January 21, compared to analyst expectations of 900,000 barrels, according to a poll by Dow Jones Newswires.

The DoE added that US gasoline stockpiles leaped by 2.4 million barrels last week.

"There is a lot of oil out there," said PFG Best oil analyst Phil Flynn.

"Everybody talks about improving demand, which is true, but we are better prepared to meet rising demand."

Also seen as bullish for prices was US President Barack Obama's call Tuesday for a freeze in federal discretionary spending and tax cuts for businesses.

"Prices rebounded, supported by improved optimism on the US economic conditions, after President Obama proposed cutting the corporate tax rate as well as scrapping loopholes," said Sucden analyst Myrto Sokou.