Oil hits 6-month high on weak dollar, OPEC talk

By Robert Gibbons

NEW YORK (BestGrowthStock) – Oil rose to a six-month peak on Tuesday as the dollar fell ahead of an expected decision by the Federal Reserve to inject more money into the economy and more OPEC producers signaled a tolerance for higher prices.

The U.S. central bank is expected to announce a second round of quantitative easing totaling around $500 billion of government debt purchases over several months at the end of its two-day policy meeting on Wednesday.

U.S. crude for December delivery rose 95 cents, or 1.15 percent, to settle at $83.90 a barrel, the highest close since May 3.

ICE December Brent crude rose 79 cents to settle at $85.41.

Late on Tuesday, the industry group American Petroleum Institute’s oil inventory report said U.S. crude stocks fell unexpectedly, by 4.1 million barrels, last week. (API/S: )

Gasoline and distillate stockpiles also fell much more than the consensus forecast.

U.S. crude oil prices extended gains in post-settlement trading after the API report, pushing above $84 a barrel.

Ahead of the API data, a Reuters analyst survey had yielded a forecast for crude supplies to be higher.

The U.S. Energy Information Administration’s inventory report is due on Wednesday morning.

The U.S. dollar weakened broadly and Wall Street rallied on Tuesday, both factors that have helped propel oil and commodity prices higher this year, as investors awaited the expected Federal Reserve attempts to support a faltering recovery and the results of Tuesday’s U.S. mid-term elections.

“The dollar is being sold and equities are higher, lifting oil, but there is some caution ahead of the elections and the Fed announcement,” said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.

Crude spiked in reaction to the top official for OPEC member Libya telling Reuters he thought oil prices would get closer to $100 by year’s end.

Shokri Ghanem, chairman of Libya’s National Oil Corp, said producers’ income for dollar-denominated oil had declined while the cost of food and other commodities had risen due to the dollar’s slump.

U.S. front-month crude oil prices have risen $8.73, or 11.6 percent since August 27, when Federal Reserve Chairman Ben Bernanke signaled the likelihood of another round of quantitative easing, according to Reuters data.

The U.S. dollar’s value against a basket of currencies (.DXY: ) fell 6.41 percent in that period.

The Libyan comments came a day after Saudi Oil Minister Ali al-Naimi said oil prices in a $70-$90 range were comfortable for consumers, signaling a higher acceptable range from the $70-$80 range previously deemed comfortable.

Qatar’s oil minister also said $70-$90 per barrel would be reasonable for consumers and producers.

The dollar fell on Tuesday after a surprise interest rate hike from Australia and positive euro zone economic news, but analysts warned of a possible rebound if the Federal Reserve moves disappoint markets.

The weak dollar lifts oil and other dollar-denominated commodities as it lowers the value of currency paid to oil producers and it attracts investment seeking better returns than found in other markets.

SELL THE NEWS

Several brokers and analysts also voiced caution about oil prices ahead of the Federal Reserve’s move, with some cautioning there might be a sell-the-news reaction if the Fed’s actions are not as substantive as expected.

A “sell-the-news” reaction to the Fed’s policy announcement is “a distinct possibility,” Tim Evans, analyst at Citi Futures Perspective in New York, said in a research note. (Additional reporting by Gene Ramos in New York and Christopher Johnson in London; Editing by David Gregorio)

Oil hits 6-month high on weak dollar, OPEC talk