U.S. oil futures decline as dollar gains on Fed rate outlook

Investing.com - U.S. oil futures declined on Thursday, as the U.S. dollar rallied after Federal Reserve Chair Janet Yellen said the central bank could start raising interest rates earlier than expected.

Oil prices typically weaken when the U.S. currency strengthens as the dollar-priced commodity becomes more expensive for holders of other currencies.

On the New York Mercantile Exchange, West Texas Intermediate crude for delivery in May fell to a daily low of $98.82 a barrel, before trimming losses to last trade at $98.91 a barrel during European morning hours, down 0.27%, or 27 cents.

The May contract inched up 0.29%, or 29 cents, to settle at $99.17 a barrel on Wednesday. Nymex oil futures were likely to find support at $97.28 a barrel, the low from March 18 and resistance at $99.59 a barrel, the high from March 12.

The Fed said Wednesday that it would reduce its monthly bond buying program by an additional $10 billion to a total of $55 billion a month, in a widely anticipated decision.

Equities sold off and the dollar rallied after Fed Chair Janet Yellen indicated that the central bank could begin to raise interest rates about six months after the bond-buying program winds up, which is expected to happen this fall.

The central bank also updated its forward guidance, discarding the 6.5% unemployment threshold for considering when to increase borrowing costs and said it will look at a wide range of information.

Meanwhile, growing indications the Chinese economy could be running out of steam dampened the appeal of growth-linked assets.

Wall Street investment bank Goldman Sachs downgraded its gross domestic product growth forecast for China, saying the world's second largest economy faces a "bumpy road ahead."

The bank lowered its 2014 forecast to 7.3% from 7.6% on Wednesday. It also cut its 2015 outlook to 7.6% from 7.8%.

China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.

Elsewhere, on the ICE Futures Exchange in London, Brent oil futures for May delivery dipped 0.14%, or 14 cents, to trade at $105.71 a barrel, while the spread between the Brent and U.S. crude contracts stood at $6.80 a barrel.