Oil rises as dollar drops after Fed interest rate cut

[May 01, 2008]  SINGAPORE (AP) -- Oil prices rose in Asian trading Thursday as the dollar weakened after the U.S. central bank cut its key interest rate.

The U.S. Federal Reserve said Wednesday it would cut the federal funds rate by a quarter percentage point to 2 percent. Early in Asia, the dollar lost ground against both the euro and yen, although it began to stabilize and strengthen later in the day.

"The U.S. (Federal Open Market Committee) meeting and the softer U.S. dollar helped the oil price recover some ground," said David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney.

Light, sweet crude for June delivery added 79 cents to $114.25 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon Thursday in Singapore.

The contract fell $2.17 Wednesday to settle at $113.46 a barrel after the U.S. government reported that crude inventories rose more than expected last week.

Interest rate cuts tend to weaken the dollar, and investors buy commodities such as oil as a hedge against inflation when the greenback falls. A weaker dollar also makes oil cheaper for overseas buyers.

The wording of the statement accompanying the Fed's announcement, though, left traders wondering whether future cuts are likely. While signaling it is concerned about weak economic growth, the central bank also cited worries about inflation -- a risk propelled in large part by higher energy prices.

Oil prices fell Wednesday after the U.S. government reported a surprisingly large jump in crude oil and distillate fuel inventories last week.

In its weekly inventory report, the Energy Department's Energy Information Administration said crude oil inventories rose 3.8 million barrels, more than double the increase analysts surveyed by energy research firm Platts had expected.

Inventories of distillates, which include heating oil and diesel fuel, rose 1.1 million barrels, more than seven times the expected increase.

Investors shrugged off a 1.5 million barrel decline in gasoline inventories. In part, that's because despite the drop, supplies of gasoline remain high for this time of year. Also, demand for gasoline fell slightly over the last four weeks, on average, compared with the same period last year, EIA data show.

In other Nymex trading, June heating oil futures rose 2.45 cents to $3.1825 a gallon while gasoline prices gained 3.12 cents to $2.9375 a gallon.

Natural gas futures added 6.8 cents to $10.911 per 1,000 cubic feet.

In London, Brent crude futures rose 77 cents to $112.13 a barrel on the ICE Futures exchange.

[Associated Press; By GILLIAN WONG]

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