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Oil Rises to Four-Month High on Fed Outlook, Mideast

13 Sep 2012

Oil climbed to a four-month high on speculation that the Federal Reserve will unveil more stimulus measures and on concern that protests in the Middle East and North Africa may curb supply.

Futures rose as much as 1.6 percent before the Federal Open Market Committee may announce a third round of bond purchases known as quantitative easing today. Protesters tried to storm the U.S. Embassy in Sana’a, Yemen. A Sept. 11 attack on the U.S. Consulate in Benghazi, Libya, killed the American ambassador, Chris Stevens, and three colleagues.

“The Fed is the primary driver and everybody is hoping to see another round of stimulus,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester,Massachusetts. “Traders definitely notice the tension that’s going on in the Middle East.”

Crude oil for October delivery advanced $1.27, or 1.3 percent, to $98.28 a barrel at 11:04 a.m. on the New York Mercantile Exchange. The contract reached $98.58, the highest level since May 4. Futures are up 8.9 percent from this time last year.

Futures breached the August high of $98.29 and $97.84, the 61.8 percent retracement level on a Fibonacci study of the decline from the year’s high of $110.55 a barrel on March 1 to the low of $77.28 on June 28, said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.

“The rise is more technical than anything else,” Kilduff said. “We’ve broken through important resistance.”

Brent Contract

Brent oil for October settlement increased 92 cents, or 0.8 percent, to $116.88 a barrel on the London-based ICE Futures Europe exchange. The contract touched $117.48, the highest level since May 3. The European benchmark grade’s premium to West Texas Intermediate traded in New York was at $18.60, down from $18.95 yesterday.

The FOMC will probably announce a third round of bond purchases after its meeting and extend the duration of its zero-interest-rate policy into 2015, according to two-thirds of the economists surveyed by Bloomberg.

“The market is in the wait-and-see mode for the Fed decision that will be announced later today and the consensus is that some form of quantitative easing is going to be announced,” said Harry Tchilinguirian, the head of commodity-markets Strategy at BNP Paribas SA in London.

Smoke could be seen rising from the vicinity of the U.S. embassy compound in Sana’a, and gunfire could be heard. Yemeni police have cordoned off the area near the embassy preventing all access.

Additional Protests

There were also demonstrations in Egypt and Iran against a film seen as insulting to Islam. In Cairo, protesters set fire to two police vehicles as authorities tried to keep them away from the U.S. embassy. At least 16 people were injured and 24 arrested, government officials said.

The attack in Libya bore the hallmarks of al-Qaeda, and may have been carried out by the group’s North Africa affiliate to mark the anniversary of the Sept. 11 attacks on the U.S., said Michigan Republican Representative Mike Rogers, chairman of the House intelligence committee.

“The events out of Libya and Egypt add to general geopolitical tension that is currently prevailing in the Middle East,” Tchilinguirian said.