September 13, 2012 / 4:46 AM / 7 years ago

UPDATE 12-Oil rises as Fed stimulus cheers markets

* Fed to buy $40 billion in mortgage-related debt per month

* Brent October crude contract expires

* U.S. gasoline futures lower as NY Harbor supply woes ease

* Coming up: CFTC positions data 3:30 p.m. EDT Friday (Recasts, adds detail paragraphs 1,3,9-10,16-17)

By Robert Gibbons

NEW YORK, Sept 13 (Reuters) - Oil rose in robust trading on Thursday, with Brent futures rising a sixth session, after the U.S. Federal Reserve launched another stimulus program in which it will buy $40 billion of mortgage debt per month until the outlook for jobs improves.

Prices seesawed after the Fed statement, initially jumping $1 per barrel and then swinging lower before climbing back into positive territory on expectations the move would encourage investors to push money into riskier assets including commodities and equities, as they have after previous stimulus initiatives.

The Thomson Reuters-Jefferies CRB commodity index rose 0.55 percent, a sixth straight gain, to touch the highest level since March, while equities markets extended gains.

“The seemingly open-ended purchase of mortgage-backed securities at $40 billion per month gives the markets the QE3 that had been priced in to a great degree,” said John Kilduff, partner at Again Capital LLC in New York.

“The Fed’s policy moves will likely push oil prices higher, but you must be mindful that the policy considerations are a reaction to underlying conditions that are not favorable to a robust demand environment for oil, at the same time.”

Front-month October Brent crude, which expired on Thursday, rose 94 cents to settle at $116.90 a barrel, marking the sixth straight session the global benchmark has traded higher. Prices reached $117.48 during the session, the highest level for Brent since the May 3 peak of $118.45.

The more actively traded November contract gained 55 cents to settle at $115.88 a barrel.

U.S. crude rose $1.30 to settle at $98.31 a barrel, off earlier highs of $98.58, the highest since $102.72 on May 4.

Crude has steadily climbed over the past week, bolstered by supply concerns, fresh unrest in oil producing countries, and Fed expectations. The gains sent both Brent and U.S. crude toward technical levels that indicate they may be overbought.

Brent and U.S. futures pushed above 65 on the 14-day Relative Strength Index. An RSI reading over 70 is generally seen as a signal of an overbought condition by traders using that technical indicator.

Total crude trading volume was heavy in both contracts, with Brent turnover 19 percent above its 30-day average, while U.S. volume was 38 percent above its 30-day average.

Gasoline futures, however, fell for a second straight day, off more than 1 percent to below $3 per gallon.

Rising supplies in the U.S. Northeast, delivery point for the New York Mercantile Exchange’s RBOB contract, and the end of the summer driving season pressured prices. Physical gasoline prices in the region have also been pressured.

“People are unwinding positions because you have the end of driving season, more refining capacity back on line after the storm and last week supplies were up in the Northeast region,” said Sal Umek, analyst at the Energy Management Institute in New York.


The Fed move sparked concerns that gains in oil and other commodities could offset the benefits of the stimulus to the economy. Six months after the first round of quantitative easing was announced, Brent prices had climbed 20 percent, while six months after the second round, they were up 38 percent.

Federal Reserve Chairman Ben Bernanke, speaking at a press conference on Thursday afternoon following the Federal Open Market Committee’s policy meeting, said that inflation has stayed close to the committee’s goal of 2 percent per year.

The U.S. dollar fell broadly on Thursday, hitting a seven-month low against the yen and a four-month trough versus the euro. A weak dollar is usually supportive to dollar-denominated commodities like oil.

On Wall Street, the S&P 500 index closed at its highest level since December 2007.


Oil traders were closely watching unrest in the Middle East and North Africa, wary of the supply disruptions caused by recent uprisings.

Demonstrators attacked U.S. embassies in Yemen and Egypt in protest over a film produced in the United States that demonstrators consider blasphemous to Islam as American warships headed to Libya after the U.S. ambassador was killed this week in related violence.

An Iraqi militia that carried out some of the most prominent attacks on foreigners during the Iraq war threatened U.S. interests. Protests erupted in Basra and Baghdad in Iraq, OPEC’s second-largest producer. (Additional reporting by Matthew Robinson in New York, Julia Payne in London and Randy Fabi in Singapore; Editing by Marguerita Choy, Dale Hudson, Bob Burgdorfer and David Gregorio)

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