NEW YORK - Oil futures closed above $90 a barrel yesterday, but retreated from their high during the day after the Federal Reserve disappointed investors by cutting a key interest rate less than many had hoped.

Gasoline prices, meanwhile, fell below $3 a gallon for the first time since Nov. 4, extending a trend expected to last through the holidays.

While traders saw the Fed's decision to cut the federal funds rate by one-quarter of a percentage point, to 4.25 percent, as a move that would help the U.S. economy - the world's top oil consumer - and bolster demand for crude oil, many were hoping for a larger, half-point cut.

Interest-rate cuts tend to weaken the dollar against other currencies. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling. Many observers blame oil's rise last month to near $100 a barrel on speculators who were driven to oil futures by the weaker dollar.

Although the Fed rate cut was not all some investors had hoped for, it was still bullish for oil prices, said Larry Chorn, chief economist at Platts, the energy research arm of the McGraw-Hill Cos. Inc.

"The Fed is willing to risk further commodity inflation in order to avoid a recession," Chorn said. "This signal should reassure the energy industry that demand growth will continue on trend."

Light, sweet crude oil for January delivery rose $2.16 to settle at $90.02 a barrel after rising as high as $90.70 before the Fed announcement.

News that several crude-oil pipelines in the Midwest were shut down because of ice storms also boosted prices for crude.

At the pump, gasoline prices fell 0.8 cents overnight to a national average of $2.995 a gallon, according to AAA and the Oil Price Information Service. Gasoline prices have fallen nearly 12 cents a gallon since peaking at $3.112 in mid-November as oil approached $100 a barrel.

In the Area

Prices per gallon.


Yesterday: $3.09.

Week ago: $3.12.

Month ago: $3.05.

South Jersey**

Yesterday: $2.86.

Week ago: $2.89.

Month ago: $2.86.

*Bucks, Chester, Delaware, Montgomery and Philadelphia Counties.

**Burlington, Camden and Gloucester Counties.

SOURCE: AAA Mid-Atlantic.