07/11/2012 09:03 EDT | Updated 09/10/2012 05:12 EDT

Oil up on expectation for more stimulus, Chinese auto sales, drop in U.S. supply

NEW YORK, N.Y. - The price of oil rose more than two per cent Wednesday after the U.S. Federal Reserve released a report that signalled it may take further steps to lift the U.S. economy.

China also reported strong auto sales for last month, and the U.S. said crude supplies declined last week by a much larger amount than what analysts expected.

Benchmark U.S. crude rose by US$1.90 to end the day at $85.81 per barrel in New York. Brent crude, which helps set the price of imported oil, increased by $2.26 to finish at $100.23 per barrel in London.

The Fed on Wednesday released the minutes of a June meeting where it decided to extend a bond-buying program through the end of the year. The report showed that policy-makers had agreed to take more aggressive steps to increase borrowing and spending.

"They left their options open for more quantitative easing," independent oil analyst Andrew Lipow said, referring to a government strategy to lower interest rates.

The U.S. is the world's largest oil consumer, and any increase in economic activity tends to boost oil demand.

Oil prices began to rise early in the day after China's auto industry said sales jumped nine per cent in June despite a slowing economy. China has quickly become the world's biggest market for new vehicles, leading some cities to limit new registrations in hopes of controlling traffic congestion. Those limits drove customers to showrooms last month to buy cars ahead of any restrictions.

In the U.S., the government said oil supplies fell last week by 4.7 million barrels — triple the decline expected by analysts — as refineries cranked up production of gasoline and other refined fuels. Average oil demand also increased slightly last week.

Meanwhile, the Organization of Petroleum Exporting Countries reported that world supplies fell last month by about 100,000 barrels per day, in part because of a large drop in production in Iran. Iranian oil production has suffered as Europe and the U.S. work to limit its exports and force the country to scale back its nuclear program. Western nations fear Iran is building a weapon; Iran denies the claim.

In other futures trading, heating oil added 4.23 cents to finish at $2.7618 per gallon while gasoline futures rose by 2.2 cents to end at $2.7689 per gallon. Natural gas increased by 11.6 cents to finish at $2.853 per 1,000 cubic feet.


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