Published: Dec 14, 2010 9:35 PM EST
Updated: Dec 14, 2010 6:35 PM EST

Crude oil prices settled lower on Tuesday after the Federal Reserve said the economy is recovering, but not fast enough to bring down unemployment.

Benchmark oil lost 33 cents to settle at $88.28 a barrel on the New York Mercantile Exchange.

Meanwhile, the national average for unleaded gasoline hovered around $2.98 a gallon on Tuesday, according to AAA, Wright Express and the Oil Price Information Service. That's up about 2 cents higher than a week ago and nearly 38 cents more than a year ago. Some analysts think the national average may reach $3 a gallon by Christmas, although drivers in some areas pay more than that already.

The Fed held its last scheduled meeting of the year on Tuesday. No major announcements were expected and none were issued. Fed policymakers said they'll keep the $600 billion bond-buying stimulus program in place to help the sluggish economy recover.

The Fed's decision to buy government bonds is meant to encourage Americans to spend more which, in turn, would boost the economy. Since the program was announced in early November, oil prices have risen an average of 4.6 percent and last week hit a two-year high of $90 a barrel.

Some analysts expect oil to reach $90 a barrel again before year-end and push toward $100 a barrel by next spring as the peak summer driving season approaches.

The economic news on Tuesday pointed to improving demand for oil and gas in the coming months. The Commerce Department said retail sales rose for a fifth straight month in November. A Business Roundtable survey found 45 percent of executives polled expect their companies to add more workers and spend more in the next six months. And the Labor Department said wholesale prices rose in November.

While the economic data was positive, energy traders are concerned about inflation and want more clarity on what the government will do to keep the economic recovery going, according to PFGBest analyst Phil Flynn.

The wintry weather that blasted the Midwest and the Northeast in the past few days is helping to keep oil prices in check for now, according to Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. He said the bad weather kept drivers off the roads and slowed demand for gasoline.

Even before the weekend blizzard, drivers put off pulling up to the pump as prices rose. The weekly SpendingPulse report showed retail gasoline consumption in the U.S. for the week ended Dec. 10 dropped 1.3 percent from a year ago.It was the biggest decline since early November. In other trading on the Nymex, heating oil added 0.27 cent to settle at $2.4679 a gallon. Gasoline lost 2.20 cents to settle at $2.2964 a gallon. Natural gas fell 16.5 cents to settle at $4.255 per 1,000 cubic feet.

In London, Brent crude rose 2 cents to settle at $91.21 per barrel on the ICE Futures exchange.

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