Bloomberg News

Oil Gains on Speculation U.S. Rates Near Zero to Boost Fuel Use

January 26, 2012

Jan. 26 (Bloomberg) -- Oil rose for a second day in New York on speculation that Federal Reserve plans to keep U.S. interest rates near a record-low will bolster economic growth and stoke fuel demand in the world’s biggest crude consumer.

Futures advanced as much as 0.9 percent to trade above $100 a barrel and extend yesterday’s 0.5 percent gain. The Federal Open Market Committee said it expects its benchmark interest rate to stay at “exceptionally low levels” at least through late 2014. U.S. fuel consumption climbed 7.5 percent to 19.2 million barrels a day in the week ended Jan. 20, the largest increase since Nov. 4, Energy Department data showed.

“Most of the price movement has been driven by the announcement” from the Fed, said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. “Continuing the zero interest- rate policy should fuel the economy. People could expect oil demand to go up.”

Crude for March delivery rose as much as 84 cents to $100.24 a barrel on the New York Mercantile Exchange and was at $99.82 at 3:56 p.m. Singapore time. The contract closed 45 cents higher at $99.40 yesterday. Prices are up 14 percent in the past year.

Brent oil for March settlement was up 74 cents, or 0.7 percent, at $110.55 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to March Nymex crude was $10.73 a barrel. That’s down from a record $27.88 on Oct. 14.

Near-Zero Rates

The Fed had previously pledged to extend near-zero interest rates through mid-2013. Chairman Ben S. Bernanke also said the central bank is considering additional asset purchases to improve economic growth.

“We’re getting a bit of a rally on expectations that the Fed will be accommodative,” said Jeremy Friesen, a commodity strategist at Societe Generale SA in Hong Kong who predicts oil to remain “rangebound” at about $100 a barrel in the coming months. “Once people focus again on the euro zone and slow growth we’re expecting in the first half of this year, you’ll see a bit of a correction in the rally.”

Talks on a debt swap to avert a Greek default resume today as international policy makers squabble over the mounting cost of the rescue. European finance ministers have insisted bondholders take bigger losses on their Greek debt.

U.S. crude stockpiles rose 3.56 million barrels last week to 334.8 million, the highest level since the week ended Dec. 2, according to the Energy Department report yesterday. Imports advanced 7.1 percent to 8.85 million barrels a day for the fourth increase in five weeks.

Iran Impact

Gasoline inventories fell 390,000 barrels to 227.1 million in the seven days ended Jan. 20, the first decline in four weeks, the report showed. Supplies were forecast to climb by 2 million barrels, the median estimate in a Bloomberg survey showed.

A halt of Iran’s oil exports to countries in the Organization of Economic Cooperation and Development would likely lead to an increase in crude prices of as much as $30 a barrel, according to the International Monetary Fund.

The blockade of Iranian oil “without offset from other sources” would trigger an initial gain of around 20 to 30 percent, the IMF said yesterday in a document. The closure of the Strait of Hormuz could trigger a much larger rally, it said.

Iran has threatened to close the strait, the transit route for about a fifth of global oil supply, if an embargo against its oil exports is implemented. The European Union announced Jan. 23 that it would ban oil imports from Iran starting July 1 to pressure the Persian Gulf nation over its nuclear program.

Other members of the Organization of Petroleum Exporting Countries would replace any loss in supply caused by the EU’s ban, a person familiar with the oil group’s policy said yesterday. Iran is OPEC’s second-largest producer after Saudi Arabia.

--Editor: Paul Gordon

To contact the reporter on this story: Ramsey Al-Rikabi in Singapore at ralrikabi@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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