Oil Rises to Four-Month High on Fed Stimulus Measures

Oil climbed to the highest level in more than four months as the Federal Reserve’s plan to buy mortgage securities boosted demand for commodities and stocks.

Futures rose above $100 after the Fed said yesterday that it would make additional purchases of debt in a third round of so-called quantitative easing. The move followed a European Central Bank bond-buying announcement on Sept. 6. Crude also gained on concern that protests in the Middle East and North Africa will disrupt shipments.

“All the factors that financial actors look at are pointing to higher prices,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “I’m surprised the price isn’t higher given the news this week.”

Crude oil for October delivery advanced 69 cents, or 0.7 percent, to $99 a barrel on the New York Mercantile Exchange, the highest settlement since May 3. Futures touched $100.42 in intraday trading. Prices increased 2.7 percent this week and are up 11 percent from a year ago.

Brent oil for November settlement climbed 78 cents, or 0.7 percent, to end the session at $116.66 a barrel on the London- based ICE Futures Europe exchange. The European benchmark grade’s premium over November West Texas Intermediate oil traded in New York was $17.33, up from $17.25 yesterday.

Global Benchmark

“There’s a lot of talk of WTI breaching $100 but it’s one of the cheapest light, sweet crude grades out there,” said David Greely, head of energy research at Goldman Sachs Group Inc. in New York. “Brent, which is more of a global benchmark, rose above $117. That’s what gasoline and diesel prices will move on.”

The Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month and that it will probably hold the federal funds rate near zero “at least through mid-2015.”

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. This follows ECB President Mario Draghi’s earlier statement that the bank has agreed to an unlimited bond-purchase program.

“What we’re seeing is primarily due to Draghi’s announcement on unlimited bond purchases last week and the Fed announcement yesterday,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Prices have risen over the last month or two in anticipation of quantitative easing and now we’re seeing a second wave of buying.”

Unconventional Tools

Fed Chairman Ben S. Bernanke is enlarging his supply of unconventional tools to attack U.S. unemployment stuck above 8 percent since February 2009.

“This is a significant move by the Fed and it’s lending considerable support to commodity prices,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “A lot of money will be pushed out and commodities are looking like a good place to invest.”

The dollar dropped as much as 1.4 percent to $1.3169 against the euro, the lowest level since May 4. A weaker U.S. currency bolsters the appeal of raw materials to investors. The Standard & Poor’s GSCI Index of 24 commodities rose 1 percent at 3:37 p.m in New York.

Stocks rallied around the world on the Fed move. The S&P 500 (SPX) and Dow Jones Industrial Average increased 0.2 percent each. The MSCI Emerging Markets Index jumped 3.2 percent in its biggest gain since June.

‘Speeding Train’

“The Fed announcement was enough to encourage the risk-on trade and send us to the highest level in four months,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “There are reasons to be concerned about the sustainability of these prices, but you can’t stand in the way of a speeding train.”

The Sept. 11 attack on the U.S. consulate in Benghazi, Libya, in which the U.S. ambassador to the country and three colleagues were killed, bolstered tensions in the region together with demonstrations in Egypt, Tunisia, Sudan, Iran and Yemen. They were sparked by an anti-Islamic video.

The German embassy in the Sudanese capital Khartoum was set on fire after it was stormed by protesters today, German Foreign Minister Guido Westerwelle said.

Iranian Barrels

Output in Iran, the Organization of Petroleum Exporting Countries’ third-biggest oil producer, fell 350,000 barrels to 2.75 million barrels a day last month, the least since February 1990, according to a Bloomberg survey. Sanctions aimed at stopping the Islamic republic’s nuclear program have hindered its ability to export crude.

“We have a tight market in large part because of the loss of Iranian barrels,” Greely said. “The tension in the Middle East continues to escalate supply concerns.”

Countries in the Middle East and North Africa were responsible for 36 percent of global oil production and held 52 percent of proved reserves in 2011, according to BP Plc (BP/)’s Statistical Review of World Energy.

Electronic trading volume on the Nymex was 754,521 contracts as of 3:37 p.m. Volume totaled 760,356 contracts yesterday, the highest level since June 29. Open interest was 1.61 million, the highest level since May 2011.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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

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