OIL climbed to near US$87 per barrel yesterday on expectations that the Fed will announce new measures to stimulate the US economy.
Benchmark crude rose US$1.11 to finish at US$86.92 per barrel in New York. Brent crude, which is used to price oil produced in foreign countries, gained US$1.40 to end at US$110.54 in London.
The Federal Reserve started a two-day meeting yesterday. The Fed has pumped money into the economy before by buying billions of dollars in bonds, and that influx of cash helped boost oil and gasoline last fall.
Fed Chairman Ben Bernanke hasn't said specifically what the central bank might do this year as the US economy moves at a snail's pace.
The dollar dropped on yesterday in relation to other major currencies, and that tends to push oil lower. Oil is traded in US currency and tends to fall when the dollar rises and makes crude more expensive for investors with foreign money.
Independent oil analyst Jim Ritterbusch said he doesn't expect the Fed to repeat its previous stimulus program, but any stimulus would help. If the economy gets extra support from the government, investors will likely expect energy demand to rise and pour more money into oil, he said.
Oil rose yesterday despite a stark warning from the International Monetary Fund that the world economy is entering a "dangerous new phase." The IMF said that a drop in bank lending and weak consumer confidence is strangling the US and European economies.
It downgraded its growth forecast for the US and Europe through the end of next year. The IMF expects the US economy to grow just 1.5 percent this year and 1.8 percent in 2012. The eurozone economy will grow 1.6 percent this year and 1.1 percent next year, the IMF said.
"Any way you slice it, energy demand is poor," analyst and trader Stephen Schork said. "Yet oil keeps rising." Schork said that oil is following the stock market higher, and it's also being treated as a relatively safe investment like silver and gold.
In other energy trading, heating oil rose 1.69 cents to finish at US$2.9616 per gallon and gasoline futures fell about half a cent to end at US$2.7014 per gallon. Natural gas was 3.1 cents lower at US$3.798 per 1,000 cubic feet.
Source:shanghaidaily