LONDON (Reuters) – Oil rose above $82 a barrel on Wednesday, closing in on a record hit the previous day after the U.S. Federal Reserve’s interest rate cut raised expectations of still robust energy demand in the world’s top consumer.
The Fed slashed rates by a half-percentage point on Tuesday in a bid to shield the U.S. economy from a housing slump and financial turbulence — sparking a rally across equities and commodities.
“Now the market is going to be searching for $85 a barrel,” said Tony Nunan of Mitsubishi Corp in Tokyo.
U.S. crude rose 59 cents to $82.10 a barrel by 7:11 a.m., after a gain of 94 cents on Tuesday when it hit a record of $82.38. London Brent crude gained 44 cents to trade at $78.03.
Oil — up a third since the start of the year — has risen on hurricane threats and other supply risks, a flow of investor money into energy from poorly performing equity markets and falling U.S. fuel inventories.
U.S. crude oil stocks are forecast to have dropped last week for the fourth straight week, sinking 2 million barrels, said analysts polled by Reuters ahead of a government report later on Wednesday.
“If we get a big drop in inventories, like three to seven million, then prices could get there ($85) in a hurry,” Nunan added.
Gasoline inventories probably dropped for a seventh week running, given strong demand and lower output after three Texas refineries were shut temporarily due to Hurricane Humberto.
Distillate stocks, which include heating oil, are expected to rise.
Another storm was expected to develop and enter the Gulf of Mexico this week, leading Shell Oil Co to evacuate 300 non-essential workers in the Gulf.
The Organization of the Petroleum Exporting Countries last week decided to raise oil output by 500,000 barrels per day from November 1, but the move did little to soothe consumer concerns that supplies may run thin this winter.
In response to oil’s rally since OPEC’s decision, a source from the producer group said oil ministers would probably hold talks about a further output boost if prices stayed above $80 a barrel for several weeks.
Some of OPEC’s 12 members are worried that record oil prices will harm global economic growth and erode demand for their crude.
China, the world’s second-largest oil consumer, on Wednesday froze all state-set prices, a step likely to prop up oil demand as subsidized fuel prices have spurred consumption during oil’s five-year rally.
Though U.S. crude has quadrupled since 2002, adjusted for inflation the price is below the $90 peak in 1980 when the Iran-Iraq war started.