BUSINESS

Oil price rises on hopes that Federal Reserve will act to stimulate US economy

06/19/2012 12:51 EDT | Updated 08/19/2012 05:12 EDT
NEW YORK, N.Y. - The price of oil rose Tuesday on hopes that the U.S. Federal Reserve would announce new measures to stimulate the U.S. economy.

U.S. West Texas Intermediate crude climbed 76 cents to end the day at US$84.03 per barrel on the New York Mercantile Exchange.

The Fed holds a two-day meeting that ends Wednesday, and in the past it has taken action to encourage Americans to spend and borrow. Many analysts think the struggles of the U.S. economy and Europe's debt crisis will compel the Fed to say or unveil something to try to boost confidence.

Any sign that the Fed is willing to take action could lift oil prices, which have fallen sharply during the past six weeks over fears that growth in the global economy will stall.

"The market is building on a little optimism that they'll do something," said Peter Donovan, an oil broker with Vantage Trading in New York.

Concerns about Iran's nuclear program also are pushing oil prices higher, Donovan said. Negotiations between six world powers and Iran — a huge oil producer — appear to have accomplished little this week in Moscow. That increases the likelihood of a European oil embargo in July. And some analysts are concerned the matter will only be settled by an armed conflict in the Middle East.

Either action — an embargo or an attack on Iran — could cut into the world's supply of oil.

The increase Tuesday was a rarity for oil. The price has been mostly falling since the end of February, and oil is more than 20 per cent cheaper than it was on May 1.

The price of U.S. gasoline has followed oil lower most of the spring and summer. On Tuesday, the national average fell below $3.50 per gallon (92 cents a litre) for the first time since Feb. 10, according to auto club AAA, Wright Express and Oil Price Information Service. The average pump price has dropped 44 cents since peaking at $3.94 in early April.

Tom Kloza, chief oil analyst at OPIS, expects prices to fall another 5 to 20 cents before the Fourth of July holiday. The price of gasoline tends to fall at this time of year as refineries increase stockpiles of summer gasoline. And with no reported refining problems and no hurricanes in sight, "the trend between now and July 4 is for lower prices," Kloza said.

In other futures trading, heating oil rose 1.74 cents to finish at $2.6351 per gallon while wholesale gasoline fell by 1.94 cents to end at $2.6415 per gallon. Natural gas slipped nine cents to finish at $2.545 per 1,000 cubic feet.

Brent crude, which helps set the price for oil imported into the U.S., fell by 29 cents to end the day at $95.76 per barrel in London.

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