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Oil has biggest gain in 3 weeks on Fed, US economy

Source: Agencies | August 1, 2013, Thursday | Online Edition

The price of oil rose the most in three weeks amid signs that the US economy is improving, but not fast enough for the Federal Reserve to reduce its monthly bond-buying program.

Still, many analysts don't expect a further spike in oil prices like the one seen earlier in July.

US benchmark oil gained US$1.95, or 1.9 percent, to close at US$105.03 per barrel on the New York Mercantile Exchange. That's the biggest one-day gain since oil rose US$2.99 on July 10.

Traders were encouraged by two economic reports. The government said the economy grew at a better-than-expected annual rate of 1.7 percent in the second quarter. And a survey from payroll company ADP showed US businesses created a healthy 200,000 jobs this month. The reports signal the possibility of improved demand for gasoline and other refined products such as diesel fuel.

Gasoline futures rose 3 cents to finish at US$3.04 per gallon.

In the afternoon, the Federal Reserve slightly downgraded its assessment of economic growth from "moderate" to "modest." That's an indication the Fed might need to maintain its US$85 billion a month in bond purchases, which have helped keep long-term borrowing rates ultra-low and boosted purchases of riskier investments such as stocks and oil futures.

The Fed statement boosted the price of oil above US$105. Oil finished the month of July with a gain of US$8.47 a barrel, or 8.8 percent.

The latest supply data from the US Energy Department was mixed. Oil supplies rose by 400,000 barrels last week — the first increase in five weeks — although supplies at the crucial Cushing, Oklahoma, hub for benchmark West Texas Intermediate crude declined by 1.9 million barrels.

Despite yesterday's jump in price, analysts don't see oil rallying much further.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, expects oil to trade in a range of US$103 to US$106 a barrel in the near term before declining.

Bank of America Merrill Lynch issued a report that said rising production in the US and slowing growth in emerging markets should constrain oil prices. The research firm said that "unless a deteriorating geopolitical outlook in the Middle East results in further crude oil supply disruptions, the rally in WTI prices is unlikely to persist."

The market has another key economic report to look forward to. On Friday the release of employment data for July will be examined for hints about future energy demand in the world's No. 1 economy.

Brent crude, traded on the ICE Futures exchange in London, rose 79 cents to end at US$107.70 per barrel.

In other energy futures trading on Nymex:

— Heating oil rose 4 cents to finish at US$3.04 a gallon.

— Natural gas rose 1 cent to end at US$3.45 per 1,000 cubic feet.

 

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