Oil Climbs After Fed Unveils Steps Aimed at Bolstering Economy

By Christian Schmollinger and Samantha Zee

March 19 (Bloomberg) -- Crude oil rebounded, rising to near $50 a barrel for the first time in more than two months, after the U.S. Federal Reserve announced plans to spend $1 trillion buying back debt.

The Fed is seeking to purchase U.S. Treasuries, mortgage- backed bonds and other debt, raising optimism that moves to end the global recession will increase fuel demand. The dollar traded near a two-month low against the euro, prompting investors to purchase oil as a hedge against inflation.

“Markets have become more optimistic about the outlook for the U.S. economy in anticipation that this new policy will improve things,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. “The U.S. dollar has weakened quite dramatically so if oil holds its value in terms of other currencies that would imply a higher dollar price.”

Crude oil for April delivery rose as much as $1.69, or 3.5 percent, to $49.83 a barrel on the New York Mercantile Exchange. It was at $49.38 a barrel at 4:07 p.m. Singapore time. Yesterday, futures fell $1.02, or 2.1 percent, to $48.14 a barrel. Prices are up 10 percent this year. Crude in New York last traded at $50 a barrel on Jan. 6.

The April contract expires tomorrow. The more-active May contract was at $49.73 a barrel, up 83 cents, at 3:05 p.m. Singapore time.

Asian stocks gained for a fifth day on optimism the Fed plan will revive economic growth. The MSCI Asia Pacific Index rose 2.2 percent to 79.96 as of 5:09 p.m. in Tokyo.

Weaker Dollar

The Dollar Index may fall for an eighth day, the longest stretch in a year, against its major trading partners after falling yesterday by the most in 23 years as the Fed prepared to flood the market with dollars as part of the debt buyback.

“If the dollar continues to fall and the stock market continues to rally, oil could go much higher,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle.

Oil prices settled lower yesterday after a government report showed that supplies of crude oil, gasoline and distillate fuel rose last week in the U.S., the world’s largest energy consuming nation.

Crude stockpiles climbed 1.94 million barrels to 353.3 million last week, the Energy Department said yesterday. Inventories were forecast to rise by 1.5 million barrels, according to the median of estimates in a Bloomberg News survey.

Fuel consumption in the U.S. dropped 0.6 percent last week to 18.8 million barrels a day, the lowest since the week ended Jan. 9. Total daily fuel demand averaged over the past four weeks was 19.1 million barrels, down 3.2 percent from a year earlier.

Demand ‘Soft’

“The broad picture is one that overall U.S. consumption still remains soft,” Commonwealth Bank’s Moore said. “Most of the macro-economic indicators out of the U.S. still remain extremely weak.”

Stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude oil is delivered, increased 368,000 barrels to 33.9 million barrels last week, the Energy Department said. Supplies in the week ended Feb. 6 were the highest since at least April 2004, when the department began reporting on inventories at the location.

U.S. refineries operated at 82.1 percent of capacity, down 0.6 percentage point from the prior week, the report showed.

Gasoline inventories rose 3.19 million barrels to 215.7 million barrels, the department said. It was the biggest gain in two months. Stockpiles were forecast to fall by 1.5 million barrels, according to the median of responses by 15 analysts in the Bloomberg News survey.

Distillate fuel supplies rose 112,000 barrels to 145.5 million, the department said. A 1 million-barrel increase was forecast.

IMF Forecasts

Crude oil in New York has tumbled from a record $147.27 a barrel in July as the U.S., Europe and Japan face their first simultaneous recessions since World War II, curbing fuel demand.

The global economy will shrink in the “neighborhood” of 0.6 percent this year, according to the International Monetary Fund’s second-ranking official.

“This is the most worrisome economic performance in the modern era,” John Lipsky, the fund’s first deputy managing director, said in an interview today in Vienna. “We anticipate a modest, moderate downturn in global output, a notable contraction in the advanced economies and very significant slowdown in the emerging and developing economies.”

The IMF predicted in January the global economy would shrink 0.5 percent this year and any contraction would be the first since World War II.

Brent crude oil for May settlement rose as much as $1.38, or 2.9 percent, to $49.04 a barrel on London’s ICE Futures Europe exchange. It was at $48.63 a barrel at 4:14 p.m. Singapore time.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Samantha Zee in Los Angeles at sze@bloomberg.net.