Oil above $80 as traders eye low interest rates

[February 22, 2010]  SINGAPORE (AP) -- Oil prices rose above $80 a barrel Monday in Asia, extending a three-week rally as investors expect the U.S. central bank to keep interest rates near zero to help fuel economic growth, which would boost crude consumption.

Benchmark crude for March delivery was up 51 cents to $80.32 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract added 75 cents to settle at $79.81 a barrel on Friday.

Investors are betting that a low inflation rate and weak employment figures will lead the Federal Reserve to keep interest rates low.

The Fed surprised investors late Thursday when it raised the so-called "discount" lending rate on emergency bank loans by one-quarter point to 0.75 percent. But Fed officials on Friday were quick to downplay the possibility of across-the-board rate hikes.

Consumer prices edged up 0.2 percent in January, the Labor Department said Friday, and excluding volatile food and energy, prices fell 0.1 percent, the first monthly decline since December 1982.

"There's hardly any fear of inflation right now," said Victor Shum, an energy analyst with consultancy Purvin & Gertz. "So the thinking is the Fed will keep interest rates near zero."

"With unemployment still high, the market doesn't expect the Fed to raise rates until the U.S. economy is stronger."

Low interest rates and massive government stimulus spending could also help weaken the U.S. dollar, which would further support oil prices. A weaker dollar makes dollar-based commodities such as oil cheaper for foreign investors.

Oil has jumped from $69.59 a barrel on Feb. 5.

In other Nymex trading in March contracts, heating oil rose 1.92 cents to $2.089 a gallon, and gasoline gained 2 cents to $2.105 a gallon. Natural gas dropped 8.4 cents to $4.96 per 1,000 cubic feet.

In London, Brent crude was up 61 cents at $78.79 on the ICE futures exchange.

[Associated Press; By ALEX KENNEDY]

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