Oil recovered from its lowest in more than 10 months in New York amid speculation that the Federal Reserve may strengthen its commitment to monetary stimulus, helping fuel demand in the world’s largest economy.
Crude rebounded as rising U.S. equity index futures signaled the earlier loss may have been excessive. Federal Reserve officials may officials may ease policy through monetary tools or statement language, according to a Bloomberg News survey. An Energy Department report tomorrow may show U.S. crude inventories climbed for a third week. OPEC cut demand forecasts for this year and next.
“The sell-off was overdone,” said James Zhang, an analyst at Standard Bank Plc in London. “The fundamentals of the oil market remain tight, and the market is also expecting supportive messages from the Fed. When it comes to where to allocate money across different assets, oil is one of the commodities with the strongest fundamentals.”
Crude for September delivery on the New York Mercantile Exchange rose as much as $1.74, or 2.1 percent, to $83.05 a barrel. The contract earlier fell to $75.71 a barrel, the lowest price since Sept. 29.
Brent oil for September settlement was up $1.72, or 1.7 percent, at $105.46 a barrel after slipping $5, or 4.8 percent, to $98.74 on the ICE Futures Europe exchange in London. It was the first time Brent fell below $100 since Feb. 8. The European benchmark contract was at a $22.72 premium to U.S. futures, after earlier reaching an intraday record of $23.76.
OPEC Demand Forecast
Federal Reserve policy makers will hold a one-day meeting as the removal of the top credit rating for the U.S. stokes speculation the nation is headed for a recession. S&P said it downgraded the country one level to AA+ because the agreement by President Barack Obama and congressional Republicans didn’t do enough to stabilize the government’s “medium-term debt dynamics.”
The Organization of Petroleum Exporting Countries cut its oil demand forecasts for this year and next as the global economic recovery loses momentum. The group reduced its 2011 consumption estimate by 150,000 barrels a day. That means global demand will rise by 1.2 million a day, or 1.4 percent, to 88.1 million a day. Next year it will increase by 1.5 percent to 89.4 million, following a “minor downward revision,” the organization said today in its monthly market report.
The group has no plans “so far” to hold an emergency meeting in response to recent price declines, said an OPEC delegate who isn’t authorized to speak publicly on the matter and declined to be identified by name. OPEC is worried about the global economy and falling demand, according to the delegate, who said the organization doesn’t have a specific price target that would trigger action.
The U.S. Energy Department report tomorrow may show crude oil supplies increased 1.5 million barrels in the seven days ended Aug. 5 as the government released barrels from the Strategic Petroleum Reserve, according to the median of eight analyst estimates in a Bloomberg News survey. Gasoline inventories probably climbed 900,000 barrels, the survey shows.
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