The “Daily Double” has come to be synonymous for lucky gamblers or those bright enough to answer Alex Trebek’s questions on the hit game show Jeopardy!, but crude oil traders can now say the term can be used to describe the bullish sentiment in crude oil.
Yesterday, the Federal Open Market Committee used its one-day meeting as another opportunity to spread the message about its low-interest rate position for now, and in the immediate future. Any threat of inflation, or hypergrowth in the U.S., no longer seems to be a concern as Fed Chairman Ben Bernanke and Company have decided the best course of action for the country is to keep interest rates near zero.
That was welcome news for crude oil traders at the New York Mercantile Exchange who pushed crude oil prices higher by 0.9% to $82.45 a barrel for the April contract. In overnight trading in London, Brent crude for May contracts rose 80 cents.
The optimistic feeling about growth in the U.S. and abroad is reinforcing the opinion that economic growth is returning, thus helping boost demand for crude oil-related products. But the run-up in oil prices isn’t exclusive to the Federal Reserve and its comments, it also has to do with statements being released from today’s OPEC meeting.
The Organization of Petroleum Exporting Countries (OPEC) stated after their one-day meeting in Vienna that even though demand for crude oil is increasing, the 12-member cartel has no immediate plans to increase supply. Algeria’s Energy Minister, Chakib Khelil, did leave the door open for possible increases in the future by saying there’s a “50-50 chance” output targets will be raised at a September meeting.
However, for now, crude oil prices are expected to continue to rise knowing OPEC is sitting still with the current flow of supply.
“OPEC says demand is increasing; this is positive for oil,” said Roland Stenzel, a crude and carbon trader at E&T Energie Handelgesellschaft mbH, from Vienna to Bloomberg News. “Low interest rates will keep the economy on track.”
As many Wall Street economists like to point out the correlation between higher crude oil prices and a growing economy, the result of those higher oil prices tends to trickle down to gasoline prices, which could threaten the economic recovery taking place in the United States. Realizing prices at the pump traditionally inflate in the spring, some crude oil enthusiasts are hoping the pain is short-term.
“I think we will see a national average of $3, but I think that is a bit excessive given the economy and the relatively low demand for crude [oil],” said Tom Kloza, publisher and chief oil analyst for the Oil Price Information Service, to The News-Press. “I think the price we will be paying on Cinco de Mayo will certainly be higher than what we pay on July Fourth.”
Kloza also added that prices are certain to rise a few cents for each gallon of gasoline as producers switch petroleum to a summer blend, which burns cleaner but is more expensive to produce.
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