NEW YORK - Overriding some bearish new data on U.S. retail sales and weak overall Chinese sentiment, oil prices Monday closed 1.5% higher in anticipation of the U.S Federal Reserve taking action Tuesday to stimulate the economy.
Light, sweet crude for August delivery settled at $88.43 a barrel on the New York Mercantile Exchange, up $1.33. Brent crude on the ICE futures exchange was trading at $103.58 a barrel, up $1.18.
"Expectations and hopes are building that we're going to see some intervention," said Matt Smith, analyst at Summit Energy, who predicts the market will be disappointed when Federal Reserve Chairman Ben Bernanke announces no new action Tuesday.
Markets have been buzzing in recent weeks with the prospect that the U.S. Federal Reserve may engage in another round of quantitative easing, whereby it buys bonds with an eye toward lowering long-term interest rates in order to stimulate the economy. Past rounds of quantitative easing have boosted oil prices, which are traded in dollars. A weaker dollar following quantitative easing attracts buyers to the oil market because the commodity becomes less costly to other currencies.
Mr. Bernanke is scheduled to appear before congressional panels on Tuesday and Wednesday.
The appearances come after the latest bit of weak news on the direction of the overall economy, which has seen poor jobs and consumer sentiment data in recent weeks.
U.S. retail sales fell for the third consecutive month in June, signaling slower economic growth as consumers rein in spending. Retail and food service sales decreased 0.5% last month to a seasonally adjusted $401.52 billion, the Commerce Department reported Monday. That is the first time since the depths of the recession in 2008 that retail sales have fallen three months in a row.
Economists surveyed by Dow Jones Newswires had forecast a 0.2% rise.
Analysts said China bears continued watching after Chinese Premier Wen Jiabao over the weekend warned that economic weakness would persist for a while longer. As the world's second-largest consumer of oil after the U.S., China has been a major driver of world oil markets in recent years.
News of the China slowdown "would put more downward pressure on crude because that's the last place that's growing," said Tariq Zahir, a managing member for Tyche Capital Advisors.
Oil prices Monday rallied initially on reports that the U.S. had fired at a ship off the coast of the United Arab Emirates on speculation that the incident was spurred by lingering tensions between the West and Iran over its nuclear program. However, subsequent reports said the incident involved Indian fishermen.
Front-month reformulated gasoline blendstock, or RBOB, settled at $2.85 a gallon, up 3.8 cents. Front-month heating oil settled at $2.83 a gallon, up 4 cents.
Copyright (c) 2012 Dow Jones & Company, Inc.
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