Oil Rises as Possible U.S. Interest Rate Cut May Spur Economy
By Christian Schmollinger
Jan. 11 (Bloomberg) -- Crude oil rose in New York after the U.S. Federal Reserve said it may cut interest rates further to bolster the world's biggest economy.
Oil rebounded as much as 1 percent after Fed Chairman Ben S. Bernanke said more interest-rate cuts ``may well be necessary'' to support growth in the world's biggest oil-consuming nation. Crude futures also gained following threats by militants in Nigeria, Africa's largest producer, to disrupt supplies.
``The past interest rate cuts caused further weakening of the U.S. dollar, which spurred buying in commodities, so that's a reason supporting prices,'' said Victor Shum, senior principal at Purvin & Gertz Inc. in Singapore. ``On top of that, a slowdown may be less severe and there will be less negative impact on oil- demand growth.''
Crude oil for February delivery rose as much as 91 cents, or 1 percent, to $94.62 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $94.35 at 1:47 p.m. in Singapore.
Yesterday prices fell $1.96, or 2.1 percent, to $93.71 a barrel, the lowest close in two weeks. Oil declined after Goldman Sachs Group Inc. said Japan and the U.S., consumers of 30 percent of the world's crude, are at risk of recession. Futures reached a record $100.09 a barrel on Jan. 3. Prices are up 82 percent from a year ago.
Brent crude for February settlement rose as much as 76 cents, or 0.8 percent, to $92.98 a barrel on London's ICE Futures Europe exchange. It was at $92.89 at 1:46 p.m. Singapore time. The contract yesterday fell $2.15, or 2.3 percent, to $92.22 a barrel, the lowest close since Dec. 20.
`Cuts Necessary'
``We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,'' the Fed's Bernanke said in his first speech since the central bank's Dec. 11 meeting.
``A number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending'' this year, Bernanke said in remarks to the Women in Housing and Finance and Exchequer Club in Washington.
The Fed isn't forecasting a recession, the Fed chief said in response to a question after the speech. ``We are forecasting slow growth, but there are downside risks,'' he added.
While a slowdown in economic growth could hurt oil demand, it could also spur investment in commodities as a hedge against inflation and a weak dollar, JPMorgan analyst Katherine Spector said in a report in which she raised her 2008 oil forecast by 12 percent to $76.50 a barrel.
``One lingering risk to our view is that investor allocations to commodities broadly and oil specifically could exceed expectations,'' Spector said in the Jan. 9 report.
MEND Threatens
The Movement for the Emancipation of the Niger Delta yesterday threatened fresh assaults after claiming it backed fighters who attacked oil vessels the previous day. Militant action has halted as much as 20 percent of the Nigeria's crude production since early 2006.
The country is the sixth-largest producer in the Organization of Petroleum Exporting Countries.
``It looks as if Nigeria is warming up again,'' said Rowan Menzies, a commodity market analyst at Commodity Warrants Australia Pty in Sydney. ``The militants are angry their wealth is being taken away, and if oil has doubled in price in the last year maybe they're twice as angry.''
MEND spokesman Jomo Gbomo said ``freelance'' fighters backed by the group attacked four vessels yesterday in Bonny River near the Bonny oil-export terminal and the Nigeria LNG Ltd. gas plant.
`Bonny Attack'
The group also threatened to blow up the main bridge that connects the commercial center of Lagos to mainland Nigeria and spread attacks to Abuja, the capital, should government forces retaliate.
``With minor irritants like the Bonny attack, they will be taken unaware with the big one,'' Gbomo said in an e-mail to Bloomberg. ``Should the military make good its threat to invade our camps, we will target the Lagos third mainland bridge, built from the wealth of the Niger Delta, and spread the theater of conflict to Abuja.''
Crude oil may fall next week on speculation that U.S. refineries will increase stockpiles after cutting supplies in December to lower tax payments.
Twenty-one of 39 analysts surveyed, or 54 percent, said oil prices will decline through Jan. 18. Nine of the respondents, or 23 percent, said futures will increase, and nine predicted little change. Last week, 52 percent of respondents said oil would rise.
U.S. crude-oil inventories declined 31.8 million barrels in the past eight weeks, according to an Energy Department report on Jan. 9. U.S. refineries usually cut oil supplies by late December because some states levy taxes on the amount in storage at year's end. Stockpiles rose in January for the past four years.
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net