Oil rose to a six-month peak on Tuesday as the dollar fell ahead of an expected decision by the Federal Reserve to inject more money into the economy and more Opec producers signalled a tolerance for higher prices. The US central bank is expected to announce a second round of quantitative easing totalling around $500 billion of government debt purchases over several months at the end of its two-day policy meeting on Wednesday.
-- Libya says oil could get closer to $100 by end of 2010
US crude for December delivery rose 95 cents, or 1.15 percent, to settle at $83.90 a barrel, the highest close since May 3. ICE December Brent crude rose 79 cents to settle at $85.41. The US dollar weakened broadly and Wall Street rallied, both factors that have helped propel oil and commodity prices higher this year, as investors awaited the expected Federal Reserve attempts to support a faltering recovery and the results of Tuesday's US mid-term elections.
"The dollar is being sold and equities are higher, lifting oil, but there is some caution ahead of the elections and the Fed announcement," said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut. Crude spiked in reaction to the top official for Opec member Libya telling Reuters he thought oil prices would get closer to $100 by year's end.
Shokri Ghanem, chairman of Libya's National Oil Corp, said producers' income for dollar-denominated oil had declined while the cost of food and other commodities had risen due to the dollar's slump. US front-month crude oil prices have risen $8.73, or 11.6 percent since August 27, when Federal Reserve Chairman Ben Bernanke signalled the likelihood of another round of quantitative easing, according to Reuters data.
The US dollar's value against a basket of currencies fell 6.41 percent in that period. The Libyan comments came a day after Saudi Oil Minister Ali al-Naimi said oil prices in a $70-$90 range were comfortable for consumers, signalling a higher acceptable range from the $70-$80 range previously deemed comfortable. Qatar's oil minister also said $70-$90 per barrel would be reasonable for consumers and producers.
Several brokers and analysts also voiced caution about oil prices ahead of the Federal Reserve's move, with some cautioning there might be a sell-the-news reaction if the Fed's actions are not as substantive as expected. A "sell-the-news" reaction to the Fed's policy announcement is "a distinct possibility," Tim Evans, analyst at Citi Futures Perspective in New York, said in a research note.
Later on Tuesday, American Petroleum Institute data is expected to show US crude stockpiles rose for the fourth time in five weeks last week as imports increased. The US Energy Information Administration's inventory report is due on Wednesday morning.
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