Oil rises as traders look to Fed's next move

Oil rose for a third straight day as traders searched for clues to whether the Federal Reserve may consider additional measures to spur economic growth.

Benchmark oil rose $1.28 to $85.56 per barrel Wednesday in New York. Brent crude gained $2.08 to $100.92 per barrel in London.

Traders are anticipating remarks on the slowing economy from Federal Reserve Chairman Ben Bernanke on Thursday when he testifies before Congress. A key factor will be Bernanke's take on the weak May jobs report. Just 69,000 jobs were created last month, the fewest in a year.

"If he thinks it's bad and his mandate is full employment, the odds of a stimulus go up," Price Futures Group analyst Phil Flynn said.

Bernanke could endorse a third round of bond buying by the Fed in an effort to push already low long-term interest rates even lower. The Fed has already purchased $2.3 trillion in Treasury bonds and mortgage-backed securities over the past three years in an effort to push interest rates lower.

The Fed in September began a $400 billion program dubbed Operation Twist by which it sold $400 billion in short-term securities and replaced them with long-term securities in an effort to put more downward pressure on long-term rates. The program is scheduled to end in June, but could be extended.

In a speech Tuesday in Fort Lauderdale, Fla., Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said that additional measures to support the economy will need to be considered if modest economic growth "is no longer realistic."

The Fed's previous stimulus efforts have helped boost the price of oil.

There also is speculation that European politicians will take steps to ease the region's debt crisis soon, although the European Central Bank left its benchmark lending rate unchanged Wednesday. Bank President Mario Draghi has said the bank cannot make up for inaction by governments.

The debt crisis has hurt the region's economy and has affected U.S. companies that do business in Europe.

Oil prices also benefited Wednesday from a small drop in U.S. inventories last week to 384.6 million barrels. It marked the first decline in 11 weeks. The Energy Department said that crude supplies remained 4.2 percent above the year-ago level.

In other trading, heating oil rose 5 cents to $2.68 per gallon while gasoline increased 2 cents to $2.71 per gallon. But natural gas dropped 3 cents to $2.42 per 1,000 cubic feet.

At the pump, the national average for a gallon of gasoline fell half a cent overnight to $3.565, according to AAA, Wright Express and the Oil Price Information Service. That's about 21 cents less than a month ago.

Associated Press

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