Oil Caps Biggest Monthly Gain Since October on Stimulus

Oil Caps Biggest Monthly Gain Since October on Stimulus Signals
Traders work in the Standard & Poor’s 500 pit at the CME Group Inc.'s Chicago Board of Trade in Chicago. The Standard & Poor’s 500 Index increased as much as 1 percent. Photographer: Tim Boyle/Bloomberg

Oil capped the biggest monthly gain since October as Federal Reserve Chairman Ben S. Bernanke said he wouldn’t rule out more stimulus to boost the economy.

Futures climbed 2 percent after Bernanke said the Fed will implement measures as needed to spur growth and the dollar fell to an eight-week low against the euro. Crude extended its rally after the government said 95 percent of U.S. Gulf of Mexico oil output was shut in for a third day because of Hurricane Isaac.

“Bernanke knows that stimulus is coming,” said Peter Schiff, chief executive officer of Westport, Connecticut-based brokerage Euro Pacific Capital, which has $3 billion in customer accounts. “Oil is going up because of the weak dollar and central bank easing. We’ll be over $100 soon.”

Oil for October delivery increased $1.85 to settle at $96.47 a barrel on the New York Mercantile Exchange. Prices increased 0.3 percent this week and 9.6 percent this month.

Floor trading in New York will be closed for the U.S. Labor Day holiday on Sept. 3. Electronic trading, which begins at its normal time on Sept. 2, will halt from 1:15 p.m. to 6 p.m. New York time on Sept. 3 before resuming, exchange owner CME Group Inc. said on its website.

Brent oil for October settlement rose $1.92, or 1.7 percent, to end the session at $114.57 a barrel on the London-based ICE Futures Europe exchange.

“The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” Bernanke said at the Kansas City Fed’s annual economic-policy symposium in Jackson Hole, Wyoming.

Bernanke spoke two weeks before the next meeting of the Federal Open Market Committee.

Quantitative Easing

The Fed’s policy makers implemented two rounds of large-scale asset purchases totaling $2.3 trillion from December 2008 to June 2011. These efforts have failed to cut the jobless rate below 8 percent more than three years into the recovery.

“It sounds like he has pretty much decided already,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s an almost done deal.”

Bernanke’s 24-page speech reviewed the Fed’s policy actions through the financial crisis and use of nontraditional policy tools such as outright bond purchases, concluding that they have been effective in boosting growth and improving financial conditions.

“The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant,” he said.

Dollar, Equities

The dollar fell to $1.2638 per euro, the lowest level since July 2. A weaker dollar boosts oil’s appeal as an investment alternative.

The Standard & Poor’s 500 Index increased as much as 1 percent. The S&P’s GSCI Index of 24 commodities added as much as 1.4 percent.

Oil pared gains briefly after the Bernanke remarks as some investors were disappointed that he didn’t announce a third-round of stimulus plan.

“People were expecting even more,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania.

Oil rose as the Bureau of Safety and Environmental Enforcement reported about 1.31 million barrels a day of U.S. Gulf oil output remained halted, with 499 platforms and 48 rigs still evacuated as of 11:30 a.m. New Orleans time today. It was the third consecutive day the government agency reported a 95 percent shut-in rate.

Gulf Output

Companies including BP Plc and Chevron Corp. said they are assessing offshore facilities in the Gulf of Mexico before returning workers.

Some refineries in Louisiana resumed production.

Exxon Mobil Corp. begun returning the 503,500-barrel-a-day Baton Rouge refinery in Louisiana to normal operations, the company said on a community hotline yesterday. It also initiated the startup process at the Chalmette refinery in Louisiana.

Placid Refining Co. LLC started its Port Allen, Louisiana, refinery yesterday, according to an e-mailed statement from the company.

Marathon Petroleum Corp. got a 1 million-barrel loan of crude from the U.S. Strategic Petroleum Reserve after its Garyville refinery Louisiana operated at reduced rates because of supply problems caused by Hurricane Isaac. The loan, which is separate from a release of reserve oil, will be returned within three months with premium barrels, similar to interest, the Energy Department said in a statement.

Refineries Return

“Oil might also be responding to the fact that some of these refineries are coming back online,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “I wouldn’t be surprised if some of the refiners put in request for oil from the SPR to make up for lost supply.”

Electronic trading volume on the Nymex was 466,156 contracts as of 3:48 p.m. in New York. Volume totaled 400,126 contracts yesterday, 26 percent below the three-month average. Open interest was 1.51 million.

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