Oil Prices Inch Up on Fed Hopes


NEW YORK ( TheStreet) -- Oil prices staged a small rally Wednesday on speculation of further monetary easing by the Federal Reserve and a decline in crude stockpiles.

Brent crude oil for November delivery was rising 68 cents to $109.55 a barrel and West Texas Intermediate (WTI) crude for October delivery was adding 70 cents to $86.14.

The Department of Energy on Wednesday reported that crude oil inventories declined 2.2 million barrels for the week ended Aug. 19 and the American Petroleum Institute (API) on Tuesday evening said that crude inventories had declined 3.3 million barrels in that period.

This, coupled with anticipation that Federal Reserve chairman Ben Bernanke could announce additional stimulus measures during his speech this Friday at the Fed's annual symposium in Jackson Hole, Wyo., unleashed oil price potential to the upside.

Also providing some additional mileage for oil prices was Shell's ( RDS.A) declaration of force majeure on its Nigerian Bonny Light exports until October, following recurrent attacks on its pipelines in Nigeria.

A handful of negative data was released on Wednesday, but traders were putting aside some of that for now.

Both the Department of Energy and API had also reported a big 1.4 million barrels and 6.4 million barrels build in gasoline stockpiles. This, as MasterCard Advisors SpendingPulse's latest weekly U.S. gasoline demand report said gasoline demand decreased by 4.2% compared to a comparable week a year ago and Moody's lowered its Japanese debt rating citing weak growth prospects.

The SpendingPulse macroeconomic indicator is based on aggregate sales and services activity in the MasterCard payments network.

The markets were also disregarding news of the possibility that Libyan leader Col. Moammar Gadhafi has essentially been toppled by rebel leaders and the civil war was coming to an end.

About 1.7 million barrels a day of oil production was lost to the Libyan civil war.

"The Gadhafi regime has fallen and no one is interested," said Commerzbank analysts. "The market apparently doesn't quite want to believe in a quick return of Libya's oil production."

But "we believe the market is underestimating this scenario, both in terms of time scale and production volume," the analysts warned. The analysts say that oil companies are already on their way back to Libya to prepare for a resumption of production.

Natural gas for September delivery was falling 4 cents to 3.957 per million British thermal units on expectations of a big stockpile injection to be reported on Thursday.

Industry analysts surveyed by Platts expect the Department of Energy to report a natural gas inventory build of 72 billion cubic feet to 75 billion cubic feet for the week ended Friday.

Platts said a natural gas build within analysts' expectations would be above both the year ago and five-year average injections.

The Department of Energy releases its weekly natural gas inventory report at 10:30 am ET Thursday.

"Storage tomorrow could be a whopper vs. last year's 38 Bcf, hence natty is struggling to hold its head above $4, despite immediate factors being conducive for a rally," said Summit Energy analyst Matt Smith.

Natural gas prices had popped 10.4 cents Tuesday in reaction to the earthquake that struck the East Coast of the U.S. "Traders bought natural gas futures as a hedge against the possibility of nuclear plant closures after yesterday's 5.8 earthquake," Cameron Hanover analysts explained.

Energy stocks were trading mixed. Royal Dutch Shell was falling 1% to $64.79; Petrobras Argentina ( PZE) was adding 1.3% to $16.59; Suncor Energy ( SU) was rising 0.7% to $30.66; Imperial Oil Limited ( IMO) was gaining 2% to $40.71; Southern Union Company ( SUG) was up 0.1% to $41.64; Atlas Pipeline Partners ( APL) was tumbling 1.4% to $27.57; and Copano Energy ( CPNO) was falling 0.9% to $30.31.

-- Written by Andrea Tse in New York.

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