Tuesday, September 18, 2007

Crude Oil Trades Above $82 After Climbing on U.S. Rate Cut

By Gavin Evans

Sept. 19 (Bloomberg) -- Crude oil rose a third day and was trading near a record above $82 a barrel in New York after the U.S. Federal Reserve cut interest rates more than expected.

The Fed lowered its benchmark interest rate by a half point to 4.75 percent, the first cut in four years, to help sustain economic growth in the world's largest oil-consuming nation. Prices also rose on expectations a report today will show that U.S. crude-oil supplies fell for the 10th time in 11 weeks.

``If you lower the interest rates our economy is better off,'' said Mark Waggoner, president of Excel Futures Inc. in Huntington Beach, California. Inventories ``are a little below last year, but we're still up above the normal range,'' he said.

Crude oil for October delivery rose as much as 69 cents, or 0.9 percent, to $82.20 a barrel and was at $82.12 in after-hours electronic trading on the New York Mercantile Exchange at 8:35 a.m. in Sydney.

The contract gained 94 cents, or 1.2 percent, to $81.51 a barrel yesterday, a record close. Futures touched $82.38 late in the session, the highest intraday price since the contract was introduced in 1983. Prices are up 33 percent from a year ago.

The half-point reduction in the federal funds target was forecast by 23 of 134 economists surveyed by Bloomberg News. One hundred and five predicted a reduction of 25 basis points. A basis point is one-hundredth of a percentage point.

``This is really bullish for crude oil and all real assets,'' Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis, said yesterday. ``The Fed has made it clear that inflation isn't a big priority, economic growth is.''


Brent crude oil for November settlement rose 61 cents, or 0.8 percent, to close at $77.59 a barrel on the London-based ICE Futures Europe exchange yesterday.

New York oil prices have gained 11 percent this month as storms threatened production in the Gulf of Mexico and U.S. crude oil inventories fell. Prices rose even as summer gasoline demand peaked and refiners started shutting units for pre-winter maintenance.

``The market seems to interpret every headline in a bullish way,'' Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said yesterday. ``Low U.S. product inventories and the hurricane season are keeping us on edge. Once the season winds down prices may ease lower.''

An Energy Department report today will probably show U.S. oil supplies dropped 2.03 million barrels last week, according to the median of responses by 16 analysts surveyed before the report. Inventories held 322.6 million barrels on Sept. 14, 8.3 percent more than the five-year average for the period.

Winter Fuels

``It makes no sense for oil to be up as high as it is now,'' Excel's Waggoner said. ``It's too early in the season'' to be worried about heating fuel supplies yet, he said.

Heating oil for October delivery rose 1.82 cents, or 0.8 percent to $2.2605 a gallon after rising 0.6 percent to $2.423 yesterday, the highest closing price since trading began in 1978.

The department's report will probably show distillate supplies, including heating oil and diesel, rose 1.2 million barrels last week, their ninth straight gain. Inventories held 134 million barrels on Sept. 7, 8 percent less than a year earlier and 0.1 percent above the five-year average for the period.

Last Updated: September 18, 2007 18:45 EDT

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