Oil Climbs After Fed Unveils Steps Aimed at Bolstering Economy

March 19 (Bloomberg) -- Crude oil rebounded after the U.S. Federal Reserve unexpectedly announced debt purchases aimed at lowering consumer borrowing costs and ending the recession, prompting gains in equities and a drop in the dollar.

The Fed plans to buy as much as $300 billion of Treasuries, as much as $750 billion of bonds backed by government-controlled mortgage companies and $100 billion in debt from other government agencies to loosen credit and boost home sales.

“The oil market rallied after the Fed announced the government would spend upwards of $1 trillion additional dollars to buy up mortgage-backed assets and treasury bills,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “The rally carried on after a boost from a falling dollar” and rising equities, he said. “If the dollar continues to fall and the stock market continues to rally, oil could go much higher.”

Crude oil for April delivery rose $1.28, or 2.7 percent, to $49.42 a barrel on the New York Mercantile Exchange at 10:41 a.m. Sydney time. Yesterday, futures fell $1.02, or 2.1 percent, to settle at $48.14 a barrel. Prices are up 7.9 percent this year.

The Standard & Poor’s 500 Index added 2.1 percent, extending its rally since last week’s 12-year low to 17 percent. Yields on 10-year notes dropped the most since at least January 1962. The dollar sank the most against the euro since September 2000.

Higher Stockpiles

Oil prices settled lower yesterday after a government report showed that U.S. supplies of crude oil, gasoline and distillate fuel, a category that includes heating oil and diesel, rose last week in the U.S., the world’s largest energy consuming nation.

Crude stockpiles climbed 1.94 million barrels to 353.3 million last week, the Energy Department said yesterday. Inventories were forecast to rise by 1.5 million barrels, according to the median of analyst estimates in a Bloomberg News survey. Supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, also increased.

Stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude oil is delivered, increased 368,000 barrels to 33.9 million barrels last week, the Energy Department said. Supplies in the week ended Feb. 6 were the highest since at least April 2004, when the department began reporting on inventories at the location.

U.S. refineries operated at 82.1 percent of capacity, down 0.6 percentage point from the prior week, the report showed.

Gasoline Supplies

Gasoline inventories rose 3.19 million barrels to 215.7 million barrels, the department said. It was the biggest gain in two months. Stockpiles were forecast to fall by 1.5 million barrels, according to the median of responses by 15 analysts in the Bloomberg News survey.

Distillate fuel supplies rose 112,000 barrels to 145.5 million, the department said. A 1 million-barrel increase was forecast.

“The build in crude oil was forecast but the gasoline increase came as a surprise,” said Sean Brodrick, natural resource analyst with Weiss Research in Jupiter, Florida. “This shows me that the U.S. economy is still weak.”

Fuel consumption dropped 0.6 percent last week to 18.8 million barrels a day, the lowest since the week ended Jan. 9. Total daily fuel demand averaged over the past four weeks was 19.1 million barrels, down 3.2 percent from a year earlier.

Crude oil in New York has tumbled from a record $147.27 in July as the U.S., Europe and Japan face their first simultaneous recessions since World War II, curbing demand for fuel.

‘Worrisome’ Performance

The global economy will shrink in the “neighborhood” of 0.6 percent this year, according to the International Monetary Fund’s second-ranking official.

“This is the most worrisome economic performance in the modern era,” John Lipsky, the fund’s first deputy managing director, said in an interview today in Vienna. “We anticipate a modest, moderate downturn in global output, a notable contraction in the advanced economies and very significant slowdown in the emerging and developing economies.”

The IMF predicted in January the global economy would shrink 0.5 percent this year and any contraction would be the first since World War II.

Organization of Petroleum Exporting Countries and IMF officials said at a conference yesterday that lower oil prices are cutting investment in new fields, risking a supply crunch when the economy recovers.

“Today’s low prices could be setting the stage for another price run-up in the future,” Lipsky said yesterday at the OPEC- sponsored Vienna seminar. While current prices help recovery, they undermine projects to bring on stream new oilfields and produce fuel from tar-sands, he said.

Brent crude oil for May settlement fell 58 cents, or 1.2 percent, to $47.66 a barrel on London’s ICE Futures Europe exchange yesterday.