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Crude Oil Trades Near 26-Month High on Bets Fed Stimulus Will Spur Demand

Oil traded near its highest in 26 months on speculation the U.S. may extend stimulus measures, bolstering demand in the world’s largest consumer of crude.

Crude rose as much as 0.6 percent today after Federal Reserve Chairman Ben S. Bernanke said the Fed may expand bond purchases beyond the $600 billion announced last month, while in Europe colder weather boosted demand for heating fuel. Hedge funds increased bullish bets on oil by the most in eight weeks on signs that the global economic recovery is gaining pace, data from regulators showed for the week to Nov. 30.

“Oil is up for many reasons, including the Fed comments, overall market optimism, geopolitical worries and speculative activity,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt.

Crude for January delivery gained as much as 57 cents to $89.76 a barrel in electronic trading on the New York Mercantile Exchange. That is the highest intraday price since Oct. 9, 2008. The contract was at $88.96 at 1:36 p.m. local time, recouping earlier losses that reached 63 cents. Brent crude for January settlement gained as much as 61 cents, or 0.7 percent, to $92.03 a barrel on the ICE Futures Europe exchange in London.

Crude settled at $89.19 a barrel on Dec. 3, the highest closing price since Oct. 7, 2008. Prices are up 12 percent this year.

Hedge funds and other large investors increased bullish bets on oil last week as prices climbed. The funds boosted so- called net-long positions by 18 percent in the seven days ended Nov. 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest increase since the week ended Oct. 5.

‘Sentiment So Bullish’

“Ninety dollars a barrel is now like a magnet that the bulls in the market want to break through,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. “These days, sentiment is so bullish that any bad news on the economic front can’t hurt the rally in oil.”

Oil rallied after Bernanke said a return to recession “doesn’t seem likely,” in an interview broadcast yesterday on CBS Corp.’s “60 Minutes” program. Still, unemployment may take five years to fall to a normal level, he said.

Crude advanced as abnormally cold weather in Europe pushed heating oil prices to the highest in more than two years.

Gasoil, or heating oil, futures for December delivery climbed as much as 1.8 percent to $775.50 a metric ton on London’s ICE exchange today. It was last at $771.50.

“The cold weather in Europe has helped squeeze up distillates demand, and that is supportive of stronger oil prices,” Purvin & Gertz’s Shum said.

Widespread Snowfall

The earliest widespread snowfall in the U.K. since 1993 has frozen over roads, disrupting traffic, with icy weather likely to last until at least Dec. 8, British Weather Services said last week.

Temperatures from the U.S. Midwest to the Northeast will be lower than normal from Dec. 8 through Dec. 16, the U.S. National Weather Service Climate Prediction Center said.

Oil in New York is approaching a level observed by technical analysts as a point where the rally may stall. This price, at $89.84 a barrel, represents the so-called 50 percent Fibonacci retracement of the drop to $32.40 in December 2008 from a record high of $147.27 in July that year, according to Bloomberg data.

The Fibonacci sequence of numbers was identified by Italian mathematician Leonardo Fibonacci in the 13th century and is used to predict points where prices may rise or fall.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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