Oil Gains After Bernanke Comments on Looser Money Policy

Oil advanced for a second day in New York after Federal Reserve Chairman Ben S. Bernanke said accommodative monetary policy is needed to lower unemployment, making commodities a more attractive investment.

Futures rose 16 cents after Bernanke said further improvement in the job market will require keeping the central bank’s interest rates low. Oil dropped earlier on concern that Europe’s debt crisis will slow growth. Trading volume was near the lowest level of the year.

“This was a Ben Bernanke rally,” said Phil Flynn, vice president of research at PFGBest in Chicago. “His view of the jobs market is not quite as rosy as most people thought it was. It sounds like we’re going to have interest rates low past 2012.”

Crude oil for May delivery settled at $107.03 a barrel on the New York Mercantile Exchange. Futures dropped as low as $106.19 before the Bernanke speech in Arlington, Virginia. Prices are up 8.3 percent this year.

Brent oil for May settlement climbed 52 cents, or 0.4 percent, to settle at $125.65 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $18.62.

The decline in U.S. unemployment to 8.3 percent in February may reflect “a reversal of the unusually large layoffs that occurred during late 2008 and over 2009,” Bernanke said.

U.S. Economy

The U.S. economy expanded at a 3 percent annual rate in the fourth quarter, the fastest pace in more than a year, as households spent more freely. Growth will probably slow to 2 percent this quarter, according to the median of 72 economists’ forecasts in a Bloomberg News survey from March 9 to March 13.

The U.S., the world’s biggest oil-consuming country, was responsible for 21 percent of global oil use in 2010, according to BP Plc’s Statistical Review of World Energy released on June 8. The European Union’s 27 members accounted for 16 percent of world demand in 2010, BP figures show.

“The reaction of the market to the Bernanke comments is mystifying,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.3 billion. “There’s absolutely nothing in the speech that we haven’t heard before.”

Europe’s Debt

Oil in New York dropped earlier after Italy’s Prime Minister Mario Monti said Spain may reignite the European debt crisis, as euro-area ministers prepare a deal to strengthen the region’s financial firewall. Chancellor Angela Merkel said Germany may back plans for the temporary and permanent euro-area rescue funds to run in parallel.

“The continuing European saga of poor growth and unsustainable debt remains a factor in holding prices back,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London.

Electronic trading volume on the Nymex was 260,014 contracts as of 3:15 p.m. in New York. Volume totaled 509,366 contracts March 23, 20 percent below the three-month average. The lowest volume of 2012 was 423,323 on Jan. 23. Open interest was 1.55 million.

Crude in New York has traded between $102.25 and $110.55 a barrel since Feb. 17, as Western countries have imposed sanctions on Iran aimed at halting its nuclear program. Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries, pumped 3.45 million barrels a day last month, the lowest level since September 2002, according to data compiled by Bloomberg. Saudi Arabia is the leading producer.

“We’re going to continue to see this market move on the headline of the moment without breaking out of our range,” Flynn said. “We will need a definite resolution to the Iran crisis to move to new areas.”