Oil Rises for Fifth Day on Speculation of Fed Stimulus

Oil rose for a fifth day on speculation that the Federal Reserve will announce additional measures to stimulate the economy, increasing fuel demand.

Prices capped the longest streak of gains since July as the Fed prepared for a two-day meeting starting tomorrow. Oil also advanced as the dollar weakened against the euro after Moody’s Investors Service said it may lower the U.S. credit rating.

“People are anticipating that there will be some stimulus plans” that should increase oil demand, said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The Moody’s announcement points to a weaker dollar, which tends to raise commodity prices.”

Crude for October delivery gained 63 cents, or 0.7 percent, to $97.17 a barrel on the New York Mercantile Exchange, the highest settlement since Aug. 22. The five-day increase is the longest since July 19. Prices are 1.7 percent lower this year.

The futures were little changed after the American Petroleum Institute reported oil inventories increased 221,000 barrels to 359 million last week. The October contract rose 32 cents, or 0.3 percent, to $96.86 a barrel at 4:34 p.m. in electronic trading. Prices were at $96.93 before the report was release at 4:30 p.m.

Brent oil for October settlement increased 59 cents, or 0.5 percent, to end at $115.40 a barrel on the London-based ICE Futures Europe exchange.

Fed Chairman Ben S. Bernanke said on Aug. 31 that he wouldn’t rule out more economic stimulus. The central bank bought a total of $2.3 trillion in bonds from December 2008 to June 2011 in two rounds of asset purchases known as quantitative easing.

Euro Gains

The dollar slipped as much as 0.9 percent against the euro after Moody’s said it may lower the U.S. credit rating to Aa1 from Aaa unless budget negotiations during 2013 lead to a reduction of the percentage of debt to gross domestic product. A stronger euro and weaker dollar increase oil’s appeal as an investment alternative.

Standard & Poor’s downgraded the U.S. on Aug. 5, 2011, and has said political and fiscal risks may lead to another lowering. Fitch Ratings rates America at AAA with a negative outlook.

The euro may be affected tomorrow when the Federal Constitutional Court in Karlsruhe decides whether Germany can participate in the 500 billion-euro ($640 billion) European Stability Mechanism, which offers loans to member states and may buy their bonds to cut borrowing costs.

‘People Waiting’

“People are waiting for the Fed meeting and the German constitutional court decision,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Oil’s strengthening is predicated on the idea that more steps will be taken to stimulate the economy.”

U.S. equities rose before tomorrow’s Fed meeting. The Standard & Poor’s 500 Index increased 0.3 percent.

“People are buying ahead of the Fed meeting,” said Bill Baruch, senior market strategist at Iitrader.com in Chicago. “Crude oil is also following the equities. Everybody is banking on the dollar becoming weaker.”

The U.S. Energy Department increased its oil price projection for 2012 today in the monthly Short-Term Energy Outlook. The department projects a price of $95.66 a barrel versus last month’s estimate of $93.90.

The department’s Energy Information Administration raised its forecast for global consumption this year to 89.09 million barrels a day, up 0.9 percent from 2011. Consumption will climb 1.1 percent to 90.1 million barrels in 2013.

Inventory Forecast

Oil also increased as a Bloomberg survey showed U.S. inventories may have dropped last week to the lowest level since March as more than a third of Gulf of Mexico output remained shut 10 days after Hurricane Isaac made landfall.

Stockpiles fell 2.9 million barrels to 354.2 million in the seven days ended Sept. 7, according to the median of 11 analyst estimates before an Energy Department report tomorrow. That would leave supplies at the least since March 23.

“A drop in inventories should add bullish support, even though it should just be temporary,” Barber said.

West Texas Intermediate oil in New York may rise to $107 a barrel to narrow the gap between the benchmark grade and other regional crudes, Goldman Sachs Group Inc. (GS) said in a report today. An increase is needed to encourage the flow of North Dakota’s Bakken crude to Cushing, Oklahoma, said David Greely, a New York-based analyst at Goldman.

Electronic trading volume on the Nymex was 457,923 contracts as of 4:35 p.m. Volume totaled 493,096 contracts yesterday, 7.9 percent below the three-month average. Open interest was 1.57 million.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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