Oil Rises for Second Day in a Row, Tops $83 a Barrel
Speculation that the Federal Reserve would act to stimulate the U.S. economy led oil prices to a two-week high, with crude topping $83 a barrel. Economists surveyed by Bloomberg News believed the Fed would propose a plan to purchase a minimum of $500 billion worth of long-term securities. Data from the beginning of this week also showed an October increase in production in the United States as well as in China, the world’s largest consumer of energy.
According to Saudi Arabia’s oil minister, Ali al-Naimi, consuming countries are the most content when oil prices are in the $70 to $90 a barrel range. Ken Hasegawa, commodity derivative sales manager for Tokyo’s Newedge brokers, noted market participants are anxious to see the outcome of the Fed meeting. “For the rest of the year, the market should be sustained around this level. Like the Saudi minister said, that’s a pretty happy price for everyone,” Hasegawa said.
The New York Mercantile Exchange saw electronic trading for crude set for December delivery rise .6 percent, or 52 cents, to $83.47 a barrel. On Monday, the contract rose to $83.86, setting it at the highest price since October 14. The current fiscal year has produced a 5.1 percent gain in futures.
The Bloomberg News survey showed 53 of 56 economists expected the Fed meeting in Washington to renew a securities purchases program aimed at increasing inflation and growth while reducing unemployment.
Investors are willing to gamble that fuel demand will grow on a global economic revival, pushing oil prices up this year even with rising inventories. October data from the Institute for Supply Management shows U.S. manufacturing grew at its fastest pace since April. Manufacturing increases helped the U.S. out of the recession, and recent data points to continued growth. China’s purchasing manager’s index shot to a six-month high in October according to its Federation of Logistics and Purchasing.
Europe posted a .7 percent, or 61 cent, rise in the price of Brent Crude for December, reaching $85.23 a barrel on the ICE Futures Europe exchange. On Monday, the contract jumped an additional $1.47 to end at $84.62
The 12-member Organization of Petroleum Exporting Countries produces approximately 40 percent of the world’s crude. Saudi Arabia is the largest producing member of the group. Al-Naimi said at an industry meeting in Singapore, “The market is very well supplied. A little bit oversupplied, but it doesn’t seem to be depressing the price.”
U.S. crude inventories grew by 5 million barrels in the week ended October 22, and analysts estimated another 1.7 million barrels were added last week. Stockpiles jumped 13 percent over the five-year average level, standing at 366.2 million. U.S gasoline stockpiles fell by 4.4 million barrels two weeks ago, the biggest drop in a year. They are expected to have regained 250,000 barrels last week according to the Bloomberg News survey.
The Commitments of Traders report from the U.S. Commodity Futures Trading Commission indicated hedge funds and other speculators added to their wagers on increasing crude prices by 9.3 percent between October 19 and October 26.