Oil Jumps $4 on Fed, Supplies

Oil jumps $4 on Fed, supplies

Hits new record of over $94 dollars a barrel as crude stocks fall and interest rates decline.

By Steve Hargreaves, CNNMoney.com staff writer
October 31 2007: 4:47 PM EDT

NEW YORK (CNNMoney.com) -- Oil prices set a new record high Wednesday, jumping over $4 on an expected interest rate cut from the Federal Reserve and dwindling supplies in the United States.

U.S. light crude for December delivery jumped $4.15 to settle at a new record of $94.53 a barrel on the New York Mercantile Exchange, topping Monday's record close of $93.80 a barrel. Prices rose as high as $94.74 in intraday trade, surpassing crude's all-time record trading high of $93.80 a barrel, also set Monday.

The Fed cut its key funds rate by a quarter percentage point Wednesday. The move, which will affect the amount both consumers and business have to pay to borrow money, was expected and traders said most of the quarter point cut was already priced into oil.

Oil prices initially retreated to trade below $94 a barrel just after the late-day interest rate news.

"The market had been rallying in anticipation of this, and the actual news didn't have much of an effect," said Andy Lebow, an energy broker at MF Global in New York.

An interest rate cut boosts oil prices because it is meant to spur economic activity, which would drive up demand for oil.

A rate cut also pushes down the dollar, in which oil is priced. A falling dollar makes oil cheaper for foreign consumers and means oil producing countries have less incentive to raise production, both of which are bullish for oil prices.

- rest at http://money.cnn.com/2007/10/31/markets/oil_eia/index.htm