Crude Oil Rises to Record $80.92 on Signs of Interest-Rate Cut

Sept. 17 (Bloomberg) -- Crude oil rose to a record $80.92 a barrel in New York on signs that the Federal Reserve will lower interest rates at its meeting tomorrow to bolster economic growth in the U.S.

``This is going to reassure folks about the economy and ease fears about a pullback in demand,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. ``This comes on top of the realization that OPEC's production increase isn't that large and the barrels won't be hitting the U.S. for months anyway.''

The Federal Reserve is forecast to cut interest rates to help prevent the housing recession from bringing down the rest of the economy. This is the fourth day that prices have touched records on concern that demand will outpace supply.

Crude oil for October delivery rose $1.47, or 1.9 percent, to settle at $80.57 a barrel at 2:48 p.m. on the New York Mercantile Exchange, a record close. The contract began trading in 1983. Futures reached the intraday high at 5:11 p.m. New York time in electronic trading.

Oil was pulled higher by natural gas, which rose 6 percent amid signs that demand will rise because of warmer-than-normal weather in the U.S. Midwest and the potential for supply disruptions during the remainder of the hurricane season. Some manufacturers and utilities can switch between oil-based fuels and natural gas depending on costs.

Natural gas for October delivery rose 37.4 cents to $6.653 per million British thermal units in New York, the highest close since Aug. 17.

OPEC Production

The Organization of Petroleum Exporting Countries announced last week in Vienna that it would release an additional 500,000 barrels of oil a day into the market beginning Nov. 1. OPEC members produce about 40 percent of the world's oil.

Goldman Sachs Group Inc. raised its year-end oil-price forecast to $85 a barrel and cited a ``high risk'' of a jump above $90. Goldman increased the forecast from a previous prediction of $72 a barrel.

OPEC's announcement of the production increase was ``too little too late,'' to prevent prices from rising above $90 a barrel, Goldman analysts, led by Jeffrey Currie, said in a research note published today.

Interest-rate futures show 46 percent of traders' bets are on a half-percentage point cut in the Fed's 5.25 percent target rate. The U.S. dollar fell to its record low of $1.3927 per euro on Sept. 13 on speculation of a rate cut.

``Countries with non-dollar denominated currencies will spend less to buy oil, which may increase demand,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``Oil exporters will see diminished income as the dollar falls.''

In U.S. dollars, West Texas Intermediate, the New York- traded crude benchmark, is up 27 percent so far this year. Oil has risen 16 percent in euros, 20 percent in British pounds and has increased 24 percent in yen.

Winter Prices

The additional barrels won't bring down oil prices during the Northern Hemisphere's winter, the London-based Centre for Global Energy Studies said in a report today. ``Concerns remain that any additional oil will not reach consuming countries until the beginning of 2008,'' according to the report.

Global oil demand peaks in the fourth quarter when refiners make heating fuel for winter.

``The U.S. economy is just one engine for global growth,'' said Antoine Halff, the head of energy research at Fimat USA Inc. in New York. ``I doubt that the problems with the U.S. housing market will have a sudden and profound impact on energy demand.''

Demand Growth

Demand growth may average 1 percent for the rest of 2007 and 0.5 percent for 2008, CGES said in the report. The U.S. Energy Department said last week that global petroleum consumption will probably increase 1.5 percent this year and 1.8 percent in 2008.

``We're looking for another big draw in crude-oil stockpiles and distillate supplies aren't looking very good,'' Mueller said. ``There are a lot reasons for oil to stay around $80.''

Crude-oil supplies dropped 2.03 million barrels in the week ended Sept. 14, according to the median of responses by 12 analysts surveyed by Bloomberg News before an Energy Department report this week. It would be the 10th decline in 11 weeks.

Inventories of distillate fuel, a category that includes heating oil and diesel, rose 1.38 million barrels, according to the survey. Supplies in the week ended Sept. 7 were 7.3 percent lower than a year earlier.

Brent crude oil for November settlement rose 76 cents, or 1 percent, to close at $76.98 a barrel on the London-based ICE Futures Europe exchange.