Crude oil climbed to a five week high after the Federal Reserve’s discount rate increase signaled an extended economic recovery and as a strike at Total SA refineries in France cut fuel output. Oil gained 0.9 percent after the central bank said the decision is a “normalization” of lending. The Fed raised the rate for direct loans to banks by a quarter point to 0.75 percent yesterday. Striking French workers began shutting oil processing operations today and warned of fuel shortages.
“The Fed’s increase of the discount rate shows that they expect further improvement of the U.S. economy,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas based energy consultant. “It’s a signal that more growth is in the cards and the fundamentals will improve.” Crude oil for March delivery increased 75 cents to $79.81 a barrel on the New York Mercantile Exchange, the highest settlement price since Jan. 12. Prices rose 7.7 percent this week, the biggest gain since October.
The increase in the discount rate is the first since June 2006. U.S. central bankers closed four emergency lending facilities this month and are preparing to reverse or neutralize the more than $1 trillion in excess bank reserves they have pumped into the banking system. “The Fed’s action is recognition that the economy is picking up,” said John Kilduff, a partner at Round Earth Capital, a New York based hedge fund that focuses on food and energy commodities. “This signals that we may see the end of the lousy fuel demand numbers”.....Read the entire article.
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