Oil climbs to five-month high at $83,33

| Thursday October 7, 2010 00:00

Oil also gained from yesterday's rise in equity prices, which have shown a significant positive correlation with oil this year.

Front-month US crude rose 51 cents yesterday to a five-month high of $83,33 a barrel, before slipping to a level 17 cents up on the day at $82,98 at 0925 GMT. (CLc1) ICE Brent rose five cents to $84,89.

Expectations have grown that the US Federal Reserve will early next month announce QE2 to boost growth, after the Bank of Japan cut interest rates on Tuesday.

Traders said the prospect of US QE2 had boosted oil, both directly by increasing expectations that the extra liquidity will be used to buy oil, and indirectly by supporting equities, which have been highly correlated with oil this year.  They added that traders were reluctant to bet against the recent trend of rising oil prices. Olivier Jakob of consultants Petromatrix in Zug, Switzerland, said that across oil and other markets, 'there's a global momentum trade, riding the wave of QE2.' He suggested oil had been boosted through 'correlation trade,' where traders buy it on equity rallies because it tends to rise and fall largely in line with equities. However, Jakob suggested QE2 would only boost oil prices 'for a short while, because in the end the fundamentals count. We have high inventories, and high spare capacity upstream and downstream.'

US crude inventories gained 4,4 million barrels in the week to October 1, the American Petroleum Institute (API) reported late on Tuesday, compared with average analyst expectations for a 300, 000 barrel increase in a Reuters survey. (Reuters)