Oil up 5 percent as dollar falls on worry of slow U.S. rate hike

By Barani Krishnan

NEW YORK (Reuters) - Oil prices jumped as much as 5 percent on Wednesday as the dollar fell after the Federal Reserve indicated it preferred a more gradual path to normalizing U.S. interest rates despite being open to the first rate hike in almost a decade.

Benchmark Brent saw choppy moves earlier in the session while U.S. crude prices were down after inventories in the United States hit record highs for a 10th week amid a peak in supplies at the futures' delivery hub. [EIA/S]

The dollar's tumble on the Fed's latest policy statement, however, powered oil higher.

Brent closed up $2.40, or 4.5 percent, at $55.91 a barrel, after rallying more than $3 after the Fed statement.

U.S. crude settled up $1.20, or almost 3 percent, at $44.66. It had fallen more than $1 earlier after the government inventory data.

Refined oil products rallied too, keeping place with the run-up in crude. U.S. New York ultra-low sulphur diesel (ULSD) and RBOB gasoline rose nearly 5 percent and 4 percent, respectively.

The Fed opened the door further for an interest rate hike as early as June, ending its pledge to be "patient" in normalizing monetary policy. But it also made it clear that it needs to see more gains in the labour market and price growth to raise rates.

The dollar fell against most major currencies after the statement. A weaker dollar raises the appeal of dollar-denominated commodities, including oil, for holders of other currencies. [USD/]

(Additional reporting by Himanshu Ojha in London and Keith Wallis and Jessica Jaganathan in Singapore; Editing by Dale Hudson, David Evans and Marguerita Choy)