Bloomberg News

Crude Rises First Time in Three Days on Fed Stimulus Optimism

September 20, 2011

Sept. 20 (Bloomberg) -- Crude oil increased for the first time in three days on speculation the Federal Reserve will take steps to bolster the U.S. economy, increasing fuel consumption.

Futures rose 1.4 percent as the Federal Open Market Committee began a meeting in Washington. Chairman Ben S. Bernanke extended the conference to two days to give the FOMC more time to discuss the merits and costs of policy options. A U.S. Energy Department report tomorrow will show supplies fell to an eight-month low, according to a Bloomberg News survey.

“There’s optimism that the Fed Open Market Committee will announce additional measures tomorrow to boost economic growth,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York.

Oil for October delivery rose $1.19 to settle at $86.89 a barrel on the New York Mercantile Exchange. The contract expired today. The more actively traded November future climbed $1.11, or 1.3 percent to $86.92.

Brent oil for November settlement increased $1.40, or 1.3 percent, to end the session at $110.54 a barrel on the London- based ICE Futures Europe exchange. The European benchmark contract was at premium of $23.62 to U.S. futures, compared with a record $26.87 on Sept. 6, based on November settlement prices.

Futures in New York settled at $85.70 a barrel yesterday, the lowest level in more than three weeks, amid concern the European debt crisis will cut fuel consumption.

‘Buying Interest’

“Given the scale of the price fall, we are seeing some buying interest out there,” said Amrita Sen, a London-based analyst at Barclays Plc. “The fundamentals still look robust with demand, even after slowing down, outpacing supply growth.”

The Standard & Poor’s 500 Index increased 0.4 percent to 1,209.11 at 3:11 p.m. and the Dow Jones Industrial Average gained 0.6 percent to 11,470.72.

“What equities do is being looked at for signals of how the economy is doing,” said Kyle Cooper, director of research for IAF Advisors in Houston. “When equities are higher, it increases optimism that the economy is stable and growth is going to pick up.”

Price also rose as the Greek government said it held “substantive” discussions about obtaining a sixth installment of aid. Finance Minister Evangelos Venizelos spoke with European Union and International Monetary Fund officials in a teleconference last night. A second call will be held tonight.

Oil and equities briefly dropped after the International Monetary Fund cut its forecast for global economic growth and a government report showed that builders began work on fewer U.S. homes than forecast. The Washington-based IMF said the world economy will expand 4 percent this year and next, compared with June forecasts of 4.3 percent in 2011 and 4.5 percent in 2012.

‘Severe’ Repercussions

The IMF predicted “severe” repercussions if Europe fails to contain its debt crisis or if U.S. policy makers reach an impasse over a fiscal plan.

U.S. housing starts dropped 5 percent to a three-month low 571,000 annual rate last month, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for a 590,000 pace.

“The market is reacting to economic news,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We may head lower because of the great uncertainty about the U.S. and European economies.”

U.S. crude-oil supplies fell 1.3 million barrels, or 0.4 percent, to 345.1 million in the seven days ended Sept. 16, according to the median of 15 analyst estimates before an Energy Department report tomorrow. The industry-finance American Petroleum Institute publishes its inventory figures today.

Ideal Oil Price

Members of the Organization of Petroleum Exporting Countries no longer see $75 a barrel as an ideal price and the group will discuss altering output levels in December should Libyan production recover, OPEC Secretary-General Abdalla El- Badri told reporters in Dubai today.

“When Libya produces a meaningful volume, then production will be discussed in the December meeting,” el-Badri told reporters in Dubai today. “If Libya will produce a meaningful number, then the secretariat will take it into account when we present our report to ministers.”

Libya’s oil output and exports came to a standstill after fighting broke out in February between forces loyal to leader Muammar Qaddafi and rebels seeking his ouster. El-Badri said yesterday he expects the country to produce as much as 600,000 barrels a day of oil soon, rising to 1 million barrels a day in six months. Libya pumped 1.59 million barrels a day in January, according to Bloomberg News estimates.

Oil volume in electronic trading on the Nymex was 430,186 contracts as of 3:10 p.m. in New York. Volume totaled 612,467 contracts yesterday. Open interest was 1.38 million contracts, the lowest level since Dec. 21.

--With assistance from Rachel Graham in Belfast and Ayesha Daya in Dubai. Editors: Dan Stets, Bill Banker

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.


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