Nymex Crude Ends at Record on US Rate Cut

NEW YORK Sep 18, 2007 (Dow Jones Newswires)

Crude oil futures settled above $81 a barrel Tuesday for the first time, after the Federal Reserve announced a half-percentage-point interest rate cut.

Oil prices had run up early in the day on speculation the Fed would make a cut of that size, which was bigger than many on Wall Street were expecting. The futures touched a record intraday high of $82.16 a barrel in late electronic trading after settlement.

The front-month October light, sweet crude contract on the New York Mercantile Exchange rose 94 cents, or 1.2%, to $81.51 a barrel, a record high for a front month contract. The futures are up 17% in the past four weeks and have closed at a record four of the past five trading sessions. Brent crude on the ICE futures exchange rose $1.23 to $78.21 a barrel.

The cut in interest rates supports crude oil prices in two ways. First, it is seen as being positive for economic growth, and therefore energy demand. But it also pressures the dollar, which generally boosts the price of dollar-denominated oil and makes it cheaper, relatively, for holders of other currencies. The dollar hit an all-time low against the euro after the rate cut was announced.

Prices could now be headed to $85 a barrel, said Phil Flynn, an analyst and broker at Alaron Trading Corp. in Chicago. Still, traders might be worried the "economy has bigger problems than the market expected," since the Fed cut the rate by 50 percentage point, instead of the quarter percentage point, he said.

Crude oil prices are also being held up by forecasts for continued drawdowns in U.S. inventories in Department of Energy data due Wednesday.

Crude oil stockpiles are expected to have fallen by 1.5 million barrels to 321.1 million barrels in the week ended Sep. 14, according to the average forecast in a Dow Jones Newswires survey of analysts. If the forecasts are right, it will be the 10th fall in stockpiles in 11 weeks and a 10% fall in that time.

Gasoline stockpiles are seen falling by 1.3 million barrels in the data for last week, which is released by the DOE's Energy Information Administration. Distillate inventories, which include heating oil and diesel fuel, are expected to grow by 1.1 million barrels. Refinery use is seen falling by 0.5 percentage point to 90% of capacity.

Heightening concerns about falling stockpiles, analysts at Goldman Sachs, which is a major energy trader, Monday boosted their end-of-year forecast to $85 a barrel from $72 a barrel and introduced a 2008 average price forecast of $85 a barrel. Analysts said they expect inventories to draw to "critical levels" in the Northern Hemisphere winter.

Front-month October reformulated gasoline blendstock, or RBOB, rose 1.61 cents, or 0.8%, to $2.0603 a gallon. Heating oil rose 1.36 cents, or 0.6%, to $2.2423 a gallon, a new settlement record.

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