Bloomberg News

Oil Rises as Fed Commits to Low Rates, Durable Goods Orders Gain

January 26, 2012

Jan. 26 (Bloomberg) -- Oil rose after the Federal Reserve announced it plans to keep U.S. interest rates near a record low through 2014 and a report showed durable goods orders in the world’s biggest crude-consuming country increased.

Futures advanced 0.3 percent as Fed Chairman Ben S. Bernanke said yesterday that policy makers are considering more bond purchases to boost growth after extending the pledge to maintain interest rates. Bookings for goods meant to last at least three years climbed 3 percent in December, data from the Commerce Department showed today.

“Between Bernanke and the durable goods orders, people are starting to feel a little bullish about the economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The durable goods number points to increasing economic growth and fuel demand.”

Crude oil for March delivery increased 30 cents to $99.70 a barrel on the New York Mercantile Exchange, the highest settlement price since Jan. 19. Prices are up 14 percent in the past year.

Brent oil for March settlement rose 98 cents, or 0.9 percent, to end the session at $110.79 a barrel on the London- based ICE Futures Europe exchange.

The Federal Open Market Committee had previously said the benchmark rate would stay low through mid-2013. Fed officials also lowered their projections for economic expansion and inflation for this year and next.

Libyan Recovery

Prices retreated from the day’s highs after equities retreated and on reports that Libyan oil output is climbing and that the Organization of Petroleum Exporting Countries’ exports are increasing. The Standard & Poor’s 500 Index dropped 0.6 percent.

“There’s a tension between free money on one hand and supply on the other,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The Fed will loan money at almost zero percent interest through 2014, which will increase demand for paper barrels. On the supply side, Libya is pumping 1.3 million barrels a day and OPEC exports are up.”

Libya’s crude production reached 1.3 million barrels a day as of Jan. 25, the state-run National Oil Corp. said on its website. Libya is seeking to raise output after disruptions that began in February during fighting to oust Muammar Qaddafi. The country pumped 1.59 million barrels a day in January 2011 before output tumbled to 45,000 barrels in August, according to Bloomberg News data.

OPEC will export 23.51 million barrels a day in the four weeks to Feb. 11, up 1.3 percent from 23.2 million shipped in the period to Jan. 14, Oil Movements, a Halifax, England-based researcher, said today in an e-mailed report. The figures exclude Ecuador and Angola.

Oil in New York has traded in a $6.34 range for the past month with futures trading from $97.40 to $103.74.

Testing Range

“Earlier this week we wanted to test the bottom end of the range,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “After Bernanke made his statement yesterday, the shorts got cold feet. Now we’re back in the middle of the range and are looking for a catalyst to launch another assault at the upper end.”

U.S. durable goods orders were forecast to climb 2 percent last month, based on the median of estimates by 78 economists surveyed by Bloomberg News. Another report showed jobless claims increased last week.

“Negative economic sentiment in the U.S. has receded,” McGillian said.

Debt Talks

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

Oil prices have moved over the last two years on the latest developments in the European debt crisis and the projected impact it would have on energy demand.

“The European outlook is still pretty grim,” said Kyle Cooper, director of research with IAF Advisors in Houston. “We’ll probably trudge along between $90 and $105 until we are sure what’s happening in Europe.”

Iranian President Mahmoud Ahmadinejad said his country is open to talks on its nuclear program and accused the West of seeking “pretexts” to dodge negotiations, the state-run Fars news agency reported. The European Union announced Jan. 23 that it will ban oil from Iran starting on July 1.

Sanctions against Iran’s oil industry may prompt the Persian Gulf country to close the Strait of Hormuz, Vice President Mohammad Reza Rahimi said on Dec. 27. The seaway is a chokepoint for about a fifth of globally traded oil.

Iranian Threat

“Iran continues to loom out there, making it almost impossible to go home short overnight because you never know what they’re going to do,” Cooper said. “They probably couldn’t shut the Strait of Hormuz for more than 24 to 48 hours but that would be enough to cause a huge price spike.”

Oil volume in electronic trading on the Nymex was 475,686 contracts as of 4:07 p.m. in New York. Volume totaled 636,717 yesterday, 7.2 percent above below the three-month average. Open interest was 1.35 million contracts.

--Editors: Margot Habiby, Dan Stets

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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