By Gillian Wong / AP
Singapore: Oil prices climbed to a fresh high above $81 a barrel amid hopes the US Federal Reserve will cut a key interest rate later Tuesday, 18 September, a move the market believes would bolster the economy and strengthen petroleum demand in the world’s largest energy consumer.
Investors expect the Fed to cut the benchmark federal funds rate at least a quarter point to 5% to ease pressure on the US credit market.
“The market will be waiting to see how much the Fed cuts interest rates and whether its statement indicates that there may be further rate cuts or not, and those will affect perceptions of the US economy and the demand for oil,” said David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney.
“The background picture is one of tight oil markets. Data from the US Energy Information Administration has shown declining oil inventories in recent weeks,” Moore said. Oil inventories are falling in the US, but remain at record levels.
Light, sweet crude for October delivery rose as high as $81.18 a barrel in Asian electronic trading on the New York Mercantile Exchange, before retreating slightly to $81.04, up 47 cents, midmorning in Singapore.
The contract on Monday jumped as high as $80.70 a barrel in intraday trading before settling at a record close of $80.57, up $1.47.
“I don’t know that there’s any particular trigger for the rise in oil prices we saw last night,” Moore said. “But once they started increasing, they did gather a bit of momentum of their own. I think that’s why we ended up seeing oil prices rising as sharply as they did.”
Oil prices have set several new records over $80 a barrel in recent days for a number of reasons, including perceptions that problems in the subprime mortgage industry would have a minor effect on the economy. The nine-session rally reversed August’s downward trend, which was based in part on concerns US subprime problems would spread, affecting the overall economy and curbing demand for petroleum products.
Beyond the economic worries, energy futures have been buffeted by supply and demand considerations in recent weeks. Last week, gasoline and oil prices jumped after Hurricane Humberto cut power to Texas, temporarily shuttering several refineries.
Most of those facilities are now in the process of restarting. But the incident reminded investors of how quickly a hurricane can develop and disrupt energy supplies.
In London, October Brent crude rose 13 cents to $77.11 a barrel on the ICE futures exchange.
Heating oil futures added 0.38 cent to $2.2325 a gallon (3.8 litres) while gasoline prices gained 0.35 cent to $2.0477 a gallon. Natural gas futures rose 0.5 cent to $6.658 per 1,000 cubic feet.