AP
Oil Prices Rise Above $82 a Barrel
Wednesday September 19, 12:58 am ET
By Gillian Wong, Associated Press Writer
Oil Prices Rise Above $82 a Barrel on Fed Rate Cut, Tight Crude, Gasoline Supplies


SINGAPORE (AP) -- Oil prices rose Wednesday above the previous session's record close, lifted by expectations the interest rate cut by the U.S. Federal Reserve will accelerate growth and increase demand for already tight crude and gasoline supplies.

Light, sweet crude for October delivery added 82 cents to $82.33 a barrel in Asian electronic trading on the New York Mercantile Exchange by midmorning in Singapore.

The Fed cut its benchmark federal funds rate overnight by half a percentage point to 4.75 percent in an effort to prevent the recent credit crunch from hurting the overall economy, a move that led to a surge in crude oil prices in the moments immediately after the announcement.

"The oil market has taken confidence from the cut in the federal funds rate," said David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney.

"There had been concerns that U.S. economic growth may slow and the U.S. is the largest oil consumer, so it would potentially impact on oil demand," Moore said. "The Fed's rate cut has at least reduced the risks of a severe slowing in the U.S. economy," he said.

Nymex crude settled Tuesday at a fresh record close of $81.51 a barrel, up 94 cents. It later hit an all-time high of $82.38 a barrel in after-hours trading. Analysts note, though, that oil prices are still well below inflation-adjusted highs of $96 to $101 a barrel achieved in the early 1980s.

Investors had already priced into the market a quarter-point cut in the benchmark federal funds rate, analysts said. The unexpected half-point cut spurred even more buying. Moreover, many analysts see a weaker dollar as a natural side effect of lower rates, and that could promote buying of oil contracts by foreign investors.

Prices also rose as investors looked ahead to an inventory report to be released later Wednesday by the U.S. Energy Department's Energy Information Administration, expected to show inventories and refinery activity declined last week.

Analysts surveyed by Dow Jones Newswires expect the EIA to show that crude inventories fell an average of 1.5 million barrels in the week ended Sept. 14, while gasoline supplies fell by 1.3 million barrels.

Refinery utilization likely fell half a percentage point to 90 percent of capacity, the analysts forecast, and distillate inventories, which include heating oil and diesel fuel, likely rose 1.1 million barrels.

Crude oil's recent rise into record territory has been driven in part by a belief that supplies are not keeping pace with robust global demand. Last week prices rose despite OPEC's decision to boost production by 500,000 barrels a day. Many analysts and investors saw that increase as too little.

October Brent crude gained 79 cents to $78.38 a barrel on the ICE futures exchange in London.

Heating oil futures rose 1.97 cents to $2.262 a gallon while gasoline prices added 2.67 cents to $2.087 a gallon. Natural gas futures rose 4.3 cents to $6.611 per 1,000 cubic feet.