Oil Climbs to Four-Month High on Fed Stimulus Plan

Oil advanced to a four-month high as the Federal Reserve announced a plan to buy mortgage securities and on concern that protests in the Middle East and North Africa may lead to supply disruptions.

Futures rose 1.3 percent after the Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month to boost growth. Protesters tried to storm the U.S. Embassy in Sana’a, Yemen. A Sept. 11 attack on the U.S. Consulate in Benghazi, Libya, killed the American ambassador, Chris Stevens, and three colleagues.

“In the long run this should be bullish because what they are promising is the gradual increase in stimulus,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The $40 billion of mortgage debt each month will increase liquidity.”

Crude oil for October delivery advanced $1.30 to $98.31 a barrel on the New York Mercantile Exchange, the highest settlement since May 4. Futures are up 9 percent from this time last year.

Futures breached $97.84, the 61.8 percent retracement level on a Fibonacci study of the decline from the year’s high of $110.55 a barrel on March 1 to the low of $77.28 on June 28, said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.

“The rise is more technical than anything else,” Kilduff said. “We’ve broken through important resistance.”

Brent Crude

Brent oil for October settlement increased 94 cents, or 0.8 percent, to end the session at $116.90 a barrel on the London-based ICE Futures Europe exchange, the highest level since May 2. October futures expired today. The more-active November Brent contract climbed 55 cents, or 0.5 percent, to settle at $115.88.

The European benchmark grade’s premium to West Texas Intermediate oil traded in New York was at $18.59, down from $18.95 yesterday.

The Federal Open Market Committee said it would likely hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014.

The Fed now expects the job-market outlook to improve more swiftly by 2014, with unemployment forecast to fall to 6.7 percent to 7.3 percent, compared with 7 percent to 7.7 percent in the central bank’s June projections. In 2015, unemployment will fall to 6 percent to 6.8 percent.

Growth will improve to as much as 3 percent next year and as much as 3.8 percent in 2014, up from upper estimates of 2.8 percent and 3.5 percent previously.

Market Reaction

“The feeling is that this is good for the U.S. economy and the markets are reacting accordingly,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts.

Equities rallied, sending benchmark indexes to the highest levels since 2007, on the Fed announcement. The Standard & Poor’s 500 increased 1.6 percent and the Dow Jones Industrial Average rose 1.5 percent.

“The equity markets liked the FOMC decision and the crude oil market is getting a lift from that,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Concern that the stimulus measures will debase the value of the U.S. currency sent the dollar lower. The greenback dropped as much as 0.8 percent to $1.3002 against the euro. A weaker dollar bolsters the appeal of dollar-denominated raw materials as an investment.

In the Middle East, assailants breached the U.S. Embassy’s security perimeter in Sana’a and set two cars on fire as security forces fired into the air to disperse the crowd, according to Yousef Al-Ahjan, one of the demonstrators.

Street Protests

There were also demonstrations in Egypt and Iran against a film seen as insulting to Islam. In Cairo, protesters set fire to two police vehicles as authorities tried to keep them away from the U.S. Embassy. At least 216 people were injured in clashes near the U.S. embassy, Ahmed el-Ansari, vice president of the Egyptian Ambulance Organization said.

The attack in Libya bore the hallmarks of al-Qaeda and may have been carried out by the group’s North Africa affiliate to mark the anniversary of the Sept. 11, 2001, attacks on the U.S., said Michigan Republican Representative Mike Rogers, chairman of the House intelligence committee.

“Anytime you have attacks in the Middle East oil-market participants will pay attention,” Mueller said. “It doesn’t matter that the countries affected by the violence aren’t major oil producers, with the exception of Libya. It feeds into geopolitical concerns.”

Mideast Supply

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’s Statistical Review of World Energy, which is released each June.

Electronic trading volume on the Nymex was 701,567 contracts as of 4:22 p.m. Volume totaled 518,797 contracts yesterday, 2.3 percent below the three-month average. Open interest was 1.59 million, the highest level since May 7.

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