Oil Pares Weekly Gain as Bernanke Says Fed May Tighten Policy

By Yee Kai Pin and Ben Sharples

Oct. 9 (Bloomberg) -- Crude oil fell in New York, paring its weekly gain, as the dollar climbed after Federal Reserve Chairman Ben S. Bernanke said monetary policy may be tightened once the economic outlook has “improved sufficiently.”

Oil traded near $71 a barrel as the U.S. currency rose against the yen and the euro, damping the investment appeal of commodities including gold. Prices rallied 3 percent yesterday, the most since Sept. 30, after the dollar declined and the number of Americans filing for unemployment benefits dropped.

Bernanke’s remarks have had “a small impact on the immediate market,” said Ken Hasegawa, a commodity derivatives sales manager at broker Newedge in Tokyo. “It shows policy is not decided yet. The trend of the dollar will continue” to give direction to oil prices, he said.

Crude oil for November delivery fell as much as 66 cents, or 0.9 percent, to $71.03 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $71.24 at 12:08 p.m. Singapore time. Yesterday, it rose $2.12 to settle at $71.69. Futures are poised to gain 2 percent this week.

The dollar strengthened to 89.11 yen as of 12:37 p.m. in Tokyo from 88.39 in New York. The U.S. currency rose to $1.4722 per euro from $1.4794 after Bernanke’s comments.

“The pullback this morning is pretty marginal,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. “Coming off the jump last night I wouldn’t read too much into that. At this point, the overall consumption picture in the U.S. remains subdued.”

Policy Change

The Fed chairman, in prepared remarks at a Board of Governors conference late yesterday in Washington, didn’t say when the central bank may tighten monetary policy.

The Federal Open Market Committee reiterated its pledge last month to keep the benchmark lending rate near zero “for an extended period” to boost a weak recovery that has yet to create jobs. U.S. unemployment rose to 9.8 percent last month, the worst since 1983.

Oil yesterday touched $72.55 a barrel, the highest in almost three weeks, after Labor Department data showed initial unemployment benefit applications fell to the lowest since January. This fanned optimism over the prospects for a recovery in energy consumption.

“Gradually improving demand conditions amid continued supply tightness should accelerate the erosion of the currently large inventory overhang, thereby starting to provide the momentum required to break to the upside of the current trading range,” analysts at Barclays Capital, led by Gayle Berry, said in a report. “We still expect prices to transition gradually to $70-$80 over the next month or so.”

Fuel Stockpiles

U.S. distillate fuel inventories rose 679,000 barrels to 171.8 million last week, an Energy Department report showed Oct. 7. Stockpiles, at their highest since January 1983, were estimated to have declined 400,000 barrels, based on a Bloomberg survey of analysts. Gasoline inventories climbed 2.94 million barrels to 214.4 million as refinery output increased.

“The factors driving the market will be decreasing stockpiles and also increasing demand with an economic recovery,” said Hasegawa at Newedge. Until then, oil prices “cannot escape from this narrow range.”

Brent crude oil for November settlement dropped as much as 71 cents, or 1 percent, to $69.06 a barrel on the London-based ICE Futures Europe exchange. The contract was at $69.23 at 12:03 p.m. in Singapore. Yesterday, it rose 3.8 percent to end the session at $69.77, the biggest gain since Sept. 30.

To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net