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Oil Hits 3-Month High on ECB Rate Cut, Greece

Thursday, 03 Nov 2011 04:45 PM

Oil rose to a three-month high in New York Thursday after the European Central Bank unexpectedly lowered interest rates and Greece signaled it won’t hold a referendum on a bailout package.

Futures climbed 1.7 percent as the ECB reduced the benchmark interest rate by 25 basis points to 1.25 percent, after 49 of 55 economists in a Bloomberg News survey had predicted no change. The gain accelerated after Finance Minister Evangelos Venizelos told party lawmakers in Athens that there won’t be a vote on Europe’s rescue agreement.

“The ECB decided to surprise nearly everyone and cut its key lending rate,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The announcement put a bounce in equities and crude went along.”

Oil for December delivery rose $1.56 to $94.07 a barrel on the New York Mercantile Exchange, the highest settlement since Aug. 1. Futures have gained 19 percent this quarter and 2.9 percent this year.

Brent oil for December settlement increased $1.49, or 1.4 percent, to end the session at $110.83 a barrel on the London- based ICE Futures Europe exchange. The difference between Nymex crude and Brent was $16.76, down 40 percent from the record high of $27.88 on Oct. 14.

Thursday’s rate cut came after the first ECB meeting with Mario Draghi as president. Draghi, who said Europe is heading toward a “mild recession,” succeeded Jean-Claude Trichet on Nov. 1.

“We’re living headline-to-headline today,” said Phil Flynn, vice president of research at PFGBest in Chicago. “There’s a lot of conflicting information out here, which is making the market very volatile.”

Greek Government

Greek Prime Minister George Papandreou reached out to the opposition about setting up a transitional government, indicating an accord would secure aid and remove the need for a referendum on the bailout.

Just hours after saying Greeks need to decide on whether their future is in the euro, Papandreou said the country belongs in the currency bloc. He welcomed support shown by the main opposition New Democracy party for last week’s rescue agreement reached with European Union leaders in Brussels.

Europe and the International Monetary Fund made cross-party support for budget cuts a condition for paying the next 8 billion euros ($11 billion) of Greek aid, the sixth installment in the 110 billion-euro package awarded at the outbreak of the crisis in May 2010.

“We’re hanging onto any news on what will happen with the referendum in Greece,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “Early today investors were dumping risky assets and now they are piling them on amid greater optimism about the European situation.”

Call For ‘Actions’

German Chancellor Angela Merkel called for “actions” by Greece to meet the terms of its bailout package before any further aid is paid. Greece must quickly agree to carry out its part of last month’s second bailout package, Merkel told reporters today at a Group of 20 summit in Cannes, France.

“The most important aspect of our task over the next two days is to resolve the financial crisis here in Europe,” U.S. President Barack Obama said between one-on-one meetings with French President Nicholas Sarkozy and Merkel. Europe needs to “flesh out more of the details” of the bailout, he said.

Oil also rose as U.S. Labor Department figures showed that fewer Americans filed applications for unemployment benefits last week. Jobless claims fell by 9,000 to 397,000 in the week ended Oct. 29, the fewest in a month.

The median forecast of 49 economists in a Bloomberg News survey called for a drop to 400,000. The total number of people on unemployment benefit rolls decreased to a six-month low.

‘Non-Oil Information’

“A lot of non-oil information is moving the market today,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. “We’re spending a lot of time handicapping what’s going on in Europe.”

The Standard & Poor’s 500 Index rose 1.7 percent to 1,259.14, and the Dow Jones Industrial Average climbed 1.6 percent to 12,026.01.

The euro advanced 0.7 percent to $1.341. A stronger common currency and a weaker dollar add to the appeal of commodities as an alternative investment.

Oil volume in electronic trading on the Nymex was 510,371 contracts as of 3:10 p.m. in New York. Volume totaled 491,425 contracts yesterday, 29 percent below the three-month average. Open interest was 1.34 million contracts, the lowest level in 11 months.

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Oil rose to a three-month high in New York Thursday after the European Central Bank unexpectedly lowered interest rates and Greece signaled it won t hold a referendum on a bailout package.Futures climbed 1.7 percent as the ECB reduced the benchmark interest rate by 25 basis...
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Thursday, 03 Nov 2011 04:45 PM
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