Oil rose for a third day on speculation that monetary policy makers will act to spur economic growth, boosting fuel demand.
Futures climbed 0.9 percent after Federal Reserve Bank of Atlanta President Dennis Lockhart said a fragile recovery may require more stimulus. European Central Bank President Mario Draghi said officials stand ready to act as the euro region’s expansion outlook worsens. Oil reduced intraday gains after government data showed inventories dropped less than forecast.
“The market is expecting some type of monetary easing programs and that would most likely help the market in terms of providing some stability,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “The inventory report showed there is no shortage of crude.”
Oil for July delivery climbed 73 cents to settle at $85.02 a barrel on the New York Mercantile Exchange. Futures traded at $86.03 a barrel before release of the inventory report at 10:30 a.m. Prices have risen 2.2 percent so far this week from an eight-month low on June 1.
Brent oil for July settlement gained $1.80, or 1.8 percent, to $100.64 on the London-based ICE Futures Europe exchange.
The Dow Jones Industrial Average (INDU) headed toward its biggest gain in 2012.
“Looks like central banks are going to increase policy accommodation and you are going to see more stimulus,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “Oil is following other risk assets like stocks.”
Lockhart said extending Operation Twist, a program to lengthen maturities of debt on the central bank’s balance sheet, is an “option on the table.”
The Fed’s policy-setting Federal Open Market Committee meets June 19 to 20 to consider whether more stimulus is warranted amid signs the U.S. economy is slowing.
The central bank bought a total of $2.3 trillion in bonds from December 2008 to June 2011 to stimulate the economy in an action known as quantitative easing.
“People are hoping that there is going to be some easing in monetary policy and that the market in the short term takes it as a positive,” said Marshall Berol, co-portfolio manager of the Encompass Fund in San Francisco, which has about $300 million in assets.
The ECB is under pressure to lower rates and introduce more liquidity support for banks as governments struggle to fix a crisis that’s engulfing Spain and could force Greece out of the euro.
“We monitor all developments closely and we stand ready to act” as the economy faces “increased downside risks,” Draghi told reporters in Frankfurt today after the ECB left its benchmark rate at 1 percent. “A few” governing council members asked for a rate cut today, he said.
The Standard & Poor’s 500 Index and the Dow average each advanced 1.8 percent. The S&P GSCI index of 24 raw materials rose 1.3 percent, heading for its biggest gain since April 2.
“There is a risk-on tone in most of the markets today and oil is following stocks,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.
Prices also rose as Iran accused the United Nations agency that oversees nuclear inspections of spying and vowed never to suspend uranium enrichment. The comments by Ali Asghar Soltanieh, Iran’s envoy to the International Atomic Energy Agency, were made at a press briefing in Vienna and cast doubt on whether a deal allowing wider atomic inspections is possible.
Oil pared its advance after the Energy Department said inventories of crude oil slipped 111,000 barrels to 384.6 million last week. Supplies were forecast to shrink 500,000 barrels. Stockpiles declined from a 22-year high.
“We’ve gone so high so fast,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “We still have too many uncertainties in the market.”
Supplies at Cushing, Oklahoma, the delivery point for New York-traded futures, increased 926,000 barrels to 47.8 million, a record. Domestic oil production rose to 6.25 million barrels a day, the highest level since February 1999.
“We are still well oversupplied,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “I look for oil to continue to go lower.”
Crude’s relative strength index, a technical indicator, shows that a decline of more than 20 percent from this year’s high into bear market conditions is the most-exaggerated drop in more than 26 years. That suggests crude may extend its rebound from an eight-month low last week.
Electronic trading volume on the Nymex was 564,329 contracts as of 3:31 p.m. in New York. Volume totaled 478,692 contracts yesterday, 15 percent below the three-month average. Open interest was 1.46 million.
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