Crude Prices Rise On Promise Of Low Interest Rates

Published January 25, 2012 7:18PM (EST)

NEW YORK (AP) — Oil prices rose Wednesday afternoon, briefly topping $100 per barrel, after the Federal Reserve said it would keep interest rates at record lows for a year longer than previously expected.

The Fed's plan allows consumers and business to continue to borrow money cheaply in the U.S., which should help boost the economy of the world's largest oil consumer. The central bank, which has kept its benchmark interest rate near zero for three years, said it doesn't plan to raise the rate before late 2014.

"They're telling investors 'Hey, there's a lot of uncertainty in this world, but the one thing you can count on is that we're going to keep interest rates low,'" PFG Best analyst Phil Flynn said. That kind of promise should spark more expansion among American businesses "and that will hopefully encourage more energy demand."

Benchmark crude on Wednesday rose by 40 cents to $99.35 per barrel in New York. At one point it was as high as $100.40. Brent crude rose 18 cents to $110.21 per barrel in London.

Major stock indices also rose in afternoon trading following the Fed statement.

Earlier in the day, the Energy Department said the nation's crude supplies increased by 3.6 million barrels last week, far more than analysts expected. Demand for oil dropped by about 4 percent. Gasoline demand was down as well, with the four-week average 6.4 percent below year-ago levels.

Supplies of gasoline and distillates, which include diesel fuel, dropped as refineries slowed operations in the face of slack demand.

Meanwhile, Iran ratcheted up tensions in the Persian Gulf with threats to halt oil sales to Europe.

Iran, the world's third-largest oil exporter, has been engaged in a lengthy dustup with Western nations over its secretive nuclear program, which may be developing a nuclear bomb. The European Union recently announced plans to embargo Iranian oil this summer. Iran now threatens to cut oil off to Europe sooner than that. EU nations account for about 18 percent of Iran's oil sales, and Iranian lawmakers think stopping oil sales to Europe would hurt those nations more than it would Iran.

Meanwhile natural gas prices continue to rebound from recent 10-year lows, rising more nearly 6 percent to $2.70 per 1,000 cubic feet on Wednesday. Prices are being pushed up by forecasts for cooler winter temperatures across much of the country, closer to average for this time of year. The mild winter thus far has slowed demand for natural gas to heat homes.

Gasoline pump prices in the U.S. were flat on Wednesday at a national average of $3.38 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. That's about the same as a week ago, 15 cents higher than a month ago and 27 cents more than a year ago.

In other energy trading heating oil was virtually unchanged at $3.02 a gallon and gasoline futures rose by 3 cents to $2.84 a gallon.

By Salon Staff

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