Oil Gains on U.S. Stimulus Speculation

Oil rose to a three-month high in New York amid speculation that central banks in the U.S. and China will ease monetary policy to stimulate growth.

West Texas Intermediate added as much as 1.1 percent after minutes of the U.S. Federal Reserve’s last meeting showed many policy makers favor more stimulus unless the economic recovery picks up. People’s Bank of China Governor Zhou Xiaochuan said adjustments to interest rates and banks’ reserve requirements are still possible. Futures pared gains after a report showed U.S. jobless claims rose for a second week.

“All the bad news for the economy is good news because it means we are that much closer to quantitative easing,” said Torbjoern Kjus, an oil analyst at DNB ASA in Oslo. “The Chinese will likely do it because the leadership does not want to transfer power without securing the economy first.”

Oil for October delivery gained as much as $1.03 to $98.29 a barrel in electronic trading on the New York Mercantile Exchange, the highest since May 4. The contract was at $97.42, up 16 cents, at 1:39 p.m. London time. Prices are 1.4 percent lower this year.

Brent oil for October settlement advanced 1 percent to $116 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to WTI was at $18.56, from $17.65 yesterday.

Fuel Stockpiles

Oil is extending its rally in New York after rising above long-term technical resistance. Futures yesterday settled higher than the 200-day moving average for the first time since May 10, according to data compiled by Bloomberg. Investors typically buy contracts when chart resistance is breached.

Members at the Federal Open Market Committee’s gathering that ended Aug. 1 indicated monetary easing will be needed “fairly soon” unless there are signs of a durable economic pickup, the minutes showed. Many participants said a new large-scale asset-purchase program “could provide additional support for the economic recovery.”

Zhou’s comments in Beijing leave the door open for further monetary stimulus after the People’s Bank of China added 220 billion yuan ($34.6 billion) to the banking system via reverse-repurchase agreements yesterday. Chinese Premier Wen Jiabao said last week that easing inflation allows more room to adjust monetary policy.

The fifth generation of leaders since Mao Zedong led China’s 1949 revolution will be appointed to take the helm of the Communist Party later this year.

Storm Isaac

Tropical Storm Isaac “slightly weakened” today as it moved into the Caribbean Sea, the National Hurricane Center said, based on reconnaissance data collected by an Air Force Reserve aircraft.

Isaac, the ninth named storm of the Atlantic hurricane season that runs through November, was 225 miles (360 kilometers) south-southeast of San Juan, Puerto Rico, the Miami-based center said in an advisory at 8 a.m. Atlantic time. The storm, which may reach southern Florida on Aug. 27, is forecast to strengthen over the next two days and could become a hurricane.

The U.S. and China are the world’s biggest oil users, accounting for a combined 32 percent of the world’s consumption, according to BP Plc’s Statistical Review of World Energy.

The number of Americans filing applications for unemployment benefits climbed last week to a one-month high, showing little progress in the labor market.

Jobless claims rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18, Labor Department figures showed today in Washington. The median forecast of 41 economists surveyed by Bloomberg called for 365,000.

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