Oil rose towards $74 today, rebounding from six-week lows, after US president Barack Obama's State of the Union address and the Fed's decision to maintain low interest rates revived some confidence about economic growth.
Mr Obama promised Americans he would prioritise job creation and curb exploding deficits in a speech to Congress that also took a more moderate tone on rules for US banks. He also pledged to double exports within the next five years.
"Once President Obama comes out with more details about his plans for reform of the US banking sector, stock markets could turn around and that would be bullish for oil," said Ben Westmore, a commodities analyst at the National Australia Bank.
US crude for March delivery rose 32 cents to $73.99 by 5.10am. Yesterday it touched $72.65, the lowest intraday price since December 14th. Prices have dropped 12 per cent from a 15-month peak near $84 on January 11th.
London ICE Brent crude for March settlement gained 24 cents to $72.48 a barrel.
In the State of the Union speech, Mr Obama did not reveal concrete plans to limit risk-taking by banks, easing concerns about new regulation. His announcement last week that he would seek sweeping reforms to curb risky lending by banks spooked financial markets, prompting investors to unwind some trades in commodities and energy markets.
Earlier yesterday, the Fed said it intended to end some emergency lending and asset-buying programmes and sounded slightly more upbeat on the US economy.
A prior government report showed a larger-than-expected gain in US gasoline stockpiles and a surprise increase in distillates, a category that includes heating oil and diesel. The gains came even as refiners kept processing rates at historically low levels.
"There is really no indication that refiners are expecting demand to pick up any time soon," Westmore said from Melbourne.
The Energy Information Administration (EIA) said US oil demand shrank by 2 per cent in the four weeks to January 22nd from a year earlier, when the US economy was hitting the bottom of its cycle, according to Harry Tchilinguirian, head of commodities research at BNP Paribas in London.
"For now, freight indicators are not showing any tangible improvement that would suggest merchandise is once again moving and re-stocking by businesses is taking place," Mr Tchilinguirian wrote.
Distillate use fell more than 8 per cent over the past four weeks, the EIA report showed.
The market shrugged off an unexpected 3.9-million barrel drop in US crude inventories as imports plunged to below 8 million bpd.
China's state economic planning agency sees global crude oil prices averaging around $80 a barrel this year, up from 2009, the official Xinhua news agency said, a level deemed conducive to both refiners and oil producers.
Reuters