Oil Above $100 As Fed Vows To Keep Key Rate Low

Published January 26, 2012 6:00AM (EST)

BANGKOK (AP) — Oil rose above $100 a barrel Thursday in Asia after the U.S. Federal Reserve said it would keep interest rates at record lows at least until 2014 to help jump-start the world's biggest economy.

Benchmark crude for March delivery was up 71 cents at $100.11 a barrel at midday Bangkok time in electronic trading on the New York Mercantile Exchange. The contract rose by 45 cents to finish at $99.40 per barrel in New York on Wednesday. At one point it was as high as $100.40.

Brent crude for March delivery was up 88 cents at $110.69 a barrel on the ICE Futures Exchange in London.

The U.S. central bank, which has kept its benchmark interest rate near zero for three years, said Wednesday that it doesn't plan to raise the rate before late 2014.

That caused the dollar to turn lower against major currencies, which makes dollar-priced oil less expensive for holders of other currencies.

"That would mean the U.S. dollar would continue to be cheap versus other currencies, and there is typically an inverse correlation between the value of the dollar and commodity pricing," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.

"So oil prices are supported by the Federal Reserve statement," he said.

But other analysts saw room for oil prices to fall.

Leaving rates low would encourage businesses and consumers to borrow money cheaply, boosting the economy and leading to higher oil demand. But the Fed also "telegraphed its concern regarding U.S. economic growth ... which is intuitively bearish for oil," said energy trader and consultant The Schork Group.

In other Nymex trading, heating oil rose 2.8 cents to $3.04 per gallon and gasoline futures gained 1.7 cents at $2.86 per gallon. Natural gas advanced 2.4 cents to $2.75 per 1,000 cubic feet.

By Salon Staff

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