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Bloomberg: Crude Oil Rises Above $82 as U.S. Rate Cut to Stoke Fuel Demand

By Sophie Tan and Christian Schmollinger

Sept. 19 (Bloomberg) — Crude oil rose, trading above $82 a barrel for a second day in New York, on speculation a U.S. interest rate cut will bolster fuel demand.

The Federal Reserve lowered its benchmark interest rate by a half point, more than economists predicted, to help sustain economic growth in the U.S., the world’s largest oil user. The Reuters-Jeffries/CRB Index of 19 commodities yesterday closed at its highest since Sept. 5, 2006, and gold reached a 16-month peak.

“The risk appetite is returning to the market, benefiting riskier assets like commodities, after the Fed confirmed it will do anything to prevent an economic slowdown,” said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. “The weaker U.S. dollar and lower interest rates are making it cheaper for non U.S. dollar investors.”

Crude oil for October delivery rose as much as 86 cents, or 1.1 percent, to $82.37 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $82.12 at 1:25 p.m. in Singapore. Gold for immediate delivery was at $724.44 an ounce at 1:27 p.m. in Singapore. It touched $726.95 an ounce yesterday, the highest since May 2006.

Oil gained 94 cents, or 1.2 percent, to $81.51 a barrel yesterday, a record close. Futures touched $82.38 late in the session, the highest intraday price since the contract was introduced in 1983. Prices are up 33 percent from a year ago.

Prices also climbed as Royal Dutch Shell Plc evacuated staff from the Gulf of Mexico because of a potential storm forming over Florida.

“If you lower the interest rates our economy is better off,” said Mark Waggoner, president of Excel Futures Inc. in Huntington Beach, California. The direction of the Florida storm “may take it right into the middle of the Gulf and that would be a problem,” he said.

Brent, Commodities

Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., said the Federal Reserve may cut interest rates another 1 percentage point to ease stress on the economy driven by a housing slump.

Brent crude oil for November settlement gained as much as 81 cents, or 1 percent, to $78.40 a barrel on the London-based ICE Futures Europe exchange. It was at $78.17 at 1:24 p.m. Singapore time.

Gold futures in New York jumped to a 27-year high yesterday, when the December delivery contract rose as much as $11.70, or 1.6 percent, to $735.50 an ounce.

The dollar reached a record low of $1.3988 per euro late yesterday, and was at $1.3983 per euro at 1:30 p.m. Singapore time. A weaker dollar makes it cheaper for users to pay for each barrel of oil in their domestic currencies.

“In euro terms oil still has some upside to it,” said Rowan Menzies, an analyst with Commodity Warrants Australia. “If you make money cheaper, there’s more floating around for speculation so that will have an impact.”

Shell Evacuates

New York oil prices have gained 11 percent this month as storms threatened production in the Gulf of Mexico and U.S. crude oil inventories fell.

Shell evacuated about 300 non-essential workers from the Gulf yesterday and may relocate 400 today because of a tropical disturbance, the company said in e-mailed statement.

A large area of disturbed weather along the east coat of Florida and the Bahamas may strengthen as it heads west into the Gulf, the National Hurricane Center said in an advisory.

“Conditions appear to be favorable for a subtropical or a tropical cyclone to form over the next day or two,” the center said in a forecast posted at 10:30 p.m. in New York.

September accounts for about a third of the storms in the North Atlantic annually, according to hurricane center data.

Supplies Drop

An Energy Department report today will probably show U.S. oil supplies dropped 2.03 million barrels last week, the 10th decline in 11 weeks, according to the median estimate from a Bloomberg News survey of 16 analysts. Inventories held 322.6 million barrels on Sept. 14, 8.3 percent more than the five-year average for the period.

“The premium of West Texas Intermediate crude to Brent could widen as we expect U.S. crude inventories to fall more than the previous week,” said CFC Seymour’s Kowalczyk.

The October oil contract expires at the close of trading today. The more widely held November contract was at $80.85 a barrel after rising 1.1 percent yesterday. World oil demand peaks in the fourth quarter when refiners make fuel for the Northern Hemisphere winter.

“It makes no sense for oil to be up as high as it is now,” Excel’s Waggoner said. “It’s too early in the season” to be worried about heating fuel supplies yet, he said.

Heating oil for October delivery rose 1.41 cents, or 0.6 percent to $2.2564 a gallon after climbing 0.6 percent to $2.423 yesterday, the highest closing price since trading began in 1978.

The department’s report will probably show distillate supplies, including heating oil and diesel, gained 1.2 million barrels last week, their ninth straight gain. Inventories held 134 million barrels on Sept. 7, or 8 percent less than a year earlier and 0.1 percent above the five-year average.

The profit margin, or crack spread, for turning crude oil into fuel fell to $7.571 a barrel yesterday, the lowest since Jan. 17. It has slid 75 percent the past four months.

To contact the reporters on this story: Sophie Tan in Singapore at [email protected] ; Christian Schmollinger in Singapore at [email protected]

Last Updated: September 19, 2007 02:14 EDT

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