Oil Climbs Most in Two Months on Stimulus Speculation

Crude rose the most in more than two months on speculation the Federal Reserve will loosen monetary policy to spur growth and as OPEC members were asked to cut production that exceeds their current output ceiling.

Oil advanced 1.6 percent as a worse-than-expected jobless claims report fueled expectations that Fed policy makers will announce new stimulus measures next week. OPEC Secretary-General Abdalla El-Badri said group’s production is about 1.6 million barrels a day above the 30 million target renewed today.

“It just gives more ammunition to the Fed and a greater chance that we’ll see something happen,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. The OPEC decision “is basically baked into the cake, and it’s not really adding positive or negative influence.”

Oil for July delivery gained $1.29 to settle at $83.91 a barrel on the New York Mercantile Exchange, the biggest percentage increase since April 11. Futures extended their advance to $84.37 a barrel in electronic trading after the settlement.

Brent oil for July settlement, which expired today, slid 10 cents to $97.03 a barrel on the London-based ICE Futures Europe exchange. The more active August contract increased 45 cents, or 0.5 percent, to $97.17 a barrel.

Speculation grew that the Fed will discuss stimulus efforts after reports showed jobless claims climbed by 6,000 to 386,000, above the 375,000 median estimate in a Bloomberg survey of economists.

The cost of living in the U.S. fell in May by the most in more than three years, Labor Department data showed today, giving Fed policy makers more flexibility to take further action to bolster U.S. economic growth.

FOMC Meeting

The Fed’s policy-setting Federal Open Market Committee will meet June 19 as slowing employment growth at home and a deepening crisis in Europe weigh on the economic outlook.

“There is a lot of anticipation of a stimulus plan,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “Oil is tracking equities and the dollar.”

The central bank bought $2.3 trillion in bonds from December 2008 to June 2011 to stimulate the economy in an action known as quantitative easing. Chicago Fed President Charles Evans said this week that extending the Twist, a plan that lengthens the average duration of bonds in the Fed’s portfolio, “would be useful.”

Equities Rise

The Standard & Poor’s 500 Index advanced 0.7 percent. The euro rose 0.4 percent against the dollar. A stronger euro and weaker dollar increase oil’s appeal as an investment alternative.

“Oil is finding a short-term base here since we can’t break through $80,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “It’s going to be pinned in a bit of a range here.”

The 12 members of the Organization of Petroleum Exporting Countries are collectively producing 31.6 million barrels a day, El-Badri told a press conference at the end of the OPEC ministers’ meeting in Vienna.

Saudi Arabia, whose minister Ali al-Naimi had indicated this week that he might favor a production increase, said he was “happy” with today’s decision to leave the output target intact.

Keeping OPEC production unchanged may be “a bit bullish because they were looking for an increase, but it might not have a long-lasting effect,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The main driver of the market remains the economic outlook, and I don’t think people have confidence that the U.S. recovery is proceeding.”

Electronic trading volume on the Nymex was 515,914 contracts as of 3:21 p.m. in New York. Volume totaled 629,186 contracts yesterday, 12 percent above the three-month average. Open interest was 1.47 million, the highest level since May 18.

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