Oil gives up gains as natgas plunges

Federal Reserve Chairman Ben Bernanke took the air out of a rally in the price of oil yesterday when he didn’t signal any imminent action to help the US economy. Oil fell 20 cents to finish at US$84.82 per barrel in New York. The price had been up two per cent prior to a morning appearance by Bernanke before Congress. It was oil’s first decline this week. Meanwhile, natural gas prices plunged 6.1 per cent after the government said that already plentiful supplies expanded last week. Bernanke said that the Fed remains ready to act if the financial crisis in Europe threatens the US economy. But he didn’t indicate that any new steps were on the way. Oil traders had hoped the Fed would consider taking measures to boost the economy after recent reports, particularly the hiring numbers for May, painted a picture of slower economic growth. Benchmark oil hit US$87.03 per barrel early in the session after China cut its benchmark lending rate for the first time in nearly four years to try to reverse a slowdown in economic growth.

 

Gene McGillian, a broker and oil analyst at Tradition Energy, said that China’s rate cut could benefit oil prices by boosting economic growth and demand for oil in the world’s second-largest economy. China imported 5.6 million barrels per day from January through April. That’s up from 5.16 million barrels a day in the same period a year ago, according to the Energy Information Administration. But recent reports indicated that China’s manufacturing sector, a big consumer of oil, has slowed. As for the Fed, it has several options it could consider to try to boost the economy. The Fed could buy more bonds to lower long-term interest rates, which would encourage more borrowing and spending. Or it could extend its plan to keep short-term rates near zero beyond late 2014.

 

The Fed’s previous stimulus efforts boosted oil prices because lower interest rates reduced the value of the dollar against other currencies. Commodities like oil are priced in dollars so the weaker dollar makes them cheaper for traders who use other currencies. McGillian said that Bernanke left policymakers with room to maneuver in case the US economy grows weaker or Europe’s financial crisis worsens. In particular, traders are awaiting the outcome of a June 17 election in Greece that could force the financially-troubled country to leave the union of countries that use the euro as currency. There are growing concerns that Greece’s departure could cause the European Union to collapse and hurt the global economy. Brent crude, which is used to price international varieties of oil, fell 71 cents to end at US$99.93 per barrel in London.  (AP)