Crude Higher on Improving Economic Outlook
Source: Dow Jones Newswires, David Bird (4/29/10)
"The Fed may as well have said: 'Go buy more oil.'"
June-delivery light, sweet crude oil was up $1.57, or 1.9%, to $84.79 a barrel after moving in a range of $83.01 to $84.82 a barrel. ICE North Sea Brent crude oil for June was $1.21, or 1.4%, higher at $87.37 a barrel.
The Labor Department said Thursday initial claims for unemployment benefits dropped by 11,000 to 448,000 in the week ended April 24, in line with expectations of economists surveyed by Dow Jones Newswires.
That followed a statement from the Federal Reserve on Wednesday citing improving economic conditions and said it would continue to keep rates low for an "extended period." That fueled a rally in oil futures Wednesday, even in the face of a growing inventory overhang.
"This is all based on economic growth," Phil Flynn, analyst at PFGBest in Chicago. "The Fed may as well have said: 'Go buy more oil.' Keeping interest rates low is a recipe for higher prices because it will help the economy improve." Flynn said the Fed policy will also keep the dollar—in which oil is priced—"relatively weak. This will play into the oil bull's hands."
Flynn said gains in oil were somewhat restrained by concerns over the European debt situation, as Standard and Poor's has cut the ratings on the debt of Greece, Portugal and Spain recent days, and by high inventories in the U.S., the world's biggest oil consumer.
U.S. crude inventories rose despite refinery operations that were the highest since July 2008. With inventories of diesel/heating oil and gasoline high, traders are worried that higher refinery rates will rapidly swell inventories, barring a strong recovery that boosts oil demand.