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Business News/ Money / Personal-finance/  Oil climbs to 5-month high at $83.33
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Oil climbs to 5-month high at $83.33

Oil climbs to 5-month high at $83.33

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By AFP

London: Crude oil climbed to a five-month high of $83.33 on Wednesday, boosted by the prospect of a second round of US quantitative easing (QE2), which would support the economy of the world’s largest oil consumer.

Oil also gained from Wednesday’s rise in equity prices, which have shown a significant positive correlation with oil this year.

Front-month US crude rose 51 cents on Wednesday to a five-month high of $83.33 a barrel, before slipping to a level 17 cents up on the day at $82.98 at 2:55pm, ICE Brent rose five cents to $84.89.

Expectations have grown that the US Federal Reserve will early next month announce QE2 to boost growth, after the Bank of Japan cut interest rates on Tuesday.

Traders said the prospect of US QE2 had boosted oil, both directly by increasing expectations that the extra liquidity will be used to buy oil, and indirectly by supporting equities, which have been highly correlated with oil this year.

They added that traders were reluctant to bet against the recent trend of rising oil prices.

Olivier Jakob of consultants Petromatrix in Zug, Switzerland, said that across oil and other markets, “there’s a global momentum trade, riding the wave of QE2."

He suggested oil had been boosted through “correlation trade," where traders buy it on equity rallies because it tends to rise and fall largely in line with equities.

However, Jakob suggested QE2 would only boost oil prices “for a short while, because in the end the fundamentals count. We have high inventories, and high spare capacity upstream and downstream."

US crude inventories gained 4.4 million barrels in the week to 1 October, the American Petroleum Institute (API) reported late on Tuesday, compared with average analyst expectations for a 300,000 barrel increase in a Reuters survey.

Prices of US crude have over the past week topped the $70-$80 range for the first time in almost two months as investors anticipated central banks would embark on a second round of expansionary monetary policy to infuse stamina into an anaemic recovery.

MIXED ECONOMIC SIGNALS

The pace of growth accelerated in the dominant US services sector last month even as it slowed among Chinese and European firms, boosting hopes the sluggish U.S. economy wasn’t stagnating.

But US hiring is still weak and the jobless rate stands at 9.6%. The strong services data may not deter the Fed from trying in coming weeks to boost growth by pumping more money into the economy. Key monthly non-farm payrolls data is due on Friday.

Government statistics on oil inventories and demand are due from the Energy Information Administration on Wednesday at 8:00pm.

Stockpiles of gasoline declined 4.1 million barrels last week, the API said, versus a forecast 200,000 barrel decrease, while supplies of distillate fuels including heating oil and diesel slid 777,000, nearly in line with the expected 900,000 barrel drop.

Shares in Asia and Europe grew strongly on Wednesday, at the prospect of QE2.

French industrial unrest threatened to intensify disruption to the oil market, after news that strikers at France’s top oil port, Fos-Lavera, will on Wednesday meet unions of nearby refineries over possible joint action. The strike at the port is into its tenth day.

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Published: 06 Oct 2010, 02:47 PM IST
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