Crude gained the most in almost two weeks after the Federal Reserve unveiled a new round of measures to bolster the U.S. economy and as the International Energy Agency increased its demand forecast.
Futures rose for a second day after the Fed said it will buy $45 billion a month in Treasury securities to help boost economic growth. The IEA raised fourth quarter and 2013 consumption estimates on signs of a demand rebound in China, the second-biggest oil user after the U.S.
“The Fed statement is having a bullish effect and it suggests that asset prices will be inflated for some time,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The IEA’s demand revision is clearly a very bullish move, and it suggests maybe the economy is better than people thought, especially China.”
Crude for January delivery rose 98 cents, or 1.1 percent, to settle at $86.77 a barrel on the New York Mercantile Exchange. Prices are down 12 percent this year. They are heading for the first annual decrease since 2008.
Brent for January settlement on the London-based ICE Futures Europe exchange gained $1.49, or 1.4 percent, to end the session at $109.50 a barrel.
The Federal Open Market Committee for the first time linked the outlook for its main interest rate to unemployment and inflation.
It said interest rates will stay low “at least as long” as the unemployment rate remains above 6.5 percent and if inflation “between one and two years ahead” is projected to be no more than 2.5 percent.
“The Fed is going to be around for a long time to come in terms of keeping money easy and pumping money into the economy,” said Tom Pawlicki, director of market research at Chicago-based commodities trading firm EOXLive. “It rekindles this whole trade where we see the dollar fall and commodities rise as investors move to hard assets.”
The dollar slipped as much as 0.7 percent against the euro. A weaker dollar and stronger euro increase dollar-denominated oil’s value as an investment alternative.
Global oil consumption in the final three months of 2012 will average 90.5 million barrels a day, about 435,000 barrels, or 0.5 percent, more than previously forecast, the Paris-based IEA said in a monthly report today. Demand will expand by 865,000 barrels a day in 2013 to 90.5 million, adding 110,000 barrels to a previous outlook.
“Markets have grown somewhat more optimistic about the Chinese economy as confidence indicators recently turned expansionary after a long period in the doldrums,” the IEA said in the report.
Futures rebounded after declining for five days through Dec. 10, the longest streak of losses since Oct. 24. Prices breached a technical resistance level at $86.70, an indicator that they may increase further, said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago.
“Oil is on the bottom part of the range and buyers are coming back to the market,” he said. “The IEA boosts its demand forecast, and it’s supportive for prices.”
The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, kept its production limit at 30 million barrels a day at a meeting in Vienna, a level it now exceeds, according to estimates from the group and from Bloomberg.
“Everything will stay as it is,” Ali al-Naimi, Saudi Arabia’s oil minister, said after the meeting in Vienna. “We respond to customer demand. Whatever the customers want, we will give them.”
Production from all 12 OPEC nations slid to an 11-month low of 30.78 million barrels a day last month, OPEC’s monthly report, which cited secondary sources for the data, showed yesterday. That’s still above the official cap and about 1.03 million barrels a day more than the projected average demand for OPEC crude next year, according to the report.
OPEC pumped 31.5 million barrels a day in November, according to Bloomberg estimates.
Crude reduced gains earlier after the Energy Department said supplies rose 843,000 to 372.6 million in the week ended Dec. 7. Inventories were forecast to decrease 2.5 million barrels, according to a Bloomberg survey.
Stockpiles of gasoline grew 5 million barrels to 217.1 million, the most since April 6. They were forecast to increase 2 million barrels, according to the survey.
Electronic trading volume on the Nymex was 656,360 contracts as of 4:43 p.m. Volume totaled 487,360 contracts yesterday, 6.1 percent lower than the three-month average. Open interest was 1.54 million.