* QE2 prospects boost crude oil
* Oil price reaches highest point since May 4
* Market downplays API data showing rise in US crude stocks
* Coming Up: U.S. EIA weekly inventory report at 1430 GMT
(Adds European comment, updates prices, previous SINGAPORE)
By David Turner
LONDON, Oct 6 (Reuters) - Crude oil climbed to a five-month
high of $83.33 on Wednesday, boosted by the prospect of a second
round of U.S. quantitative easing (QE2), which would support the
economy of the world's largest oil consumer.
Oil also gained from Wednesday's rise in equity prices,
which have shown a significant positive correlation with oil
this year.
Front-month U.S. crude rose 51 cents on Wednesday 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. <LCOc1>
Expectations have grown that the U.S. 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 U.S. 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."
U.S. 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.
[]
Prices of U.S. crude have over the past week topped the
$70-$80 range for the first time in almost two months as
investors anticipated central banks would embark on a second
round of expansionary monetary policy to infuse stamina into an
anaemic recovery.
MIXED ECONOMIC SIGNALS
The pace of growth accelerated in the dominant U.S. services
sector last month even as it slowed among Chinese and European
firms, boosting hopes the sluggish U.S. economy wasn't
stagnating.
But U.S. hiring is still weak and the jobless rate stands at
9.6 percent. The strong services data may not deter the Fed from
trying in coming weeks to boost growth by pumping more money
into the economy. Key monthly non-farm payrolls data is due on
Friday.
Government statistics on oil inventories and demand are due
from the Energy Information Administration on Wednesday at 1430
GMT. []
Stockpiles of gasoline declined 4.1 million barrels last
week, the API said, versus a forecast 200,000 barrel decrease,
while supplies of distillate fuels including heating oil and
diesel slid 777,000, nearly in line with the expected 900,000
barrel drop.
Shares in Asia and Europe grew strongly on Wednesday, at the
prospect of QE2. <> <> [] []
French industrial unrest threatened to intensify disruption
to the oil market, after news that strikers at France's top oil
port, Fos-Lavera, will on Wednesday meet unions of nearby
refineries over possible joint action. The strike at the port is
into its tenth day. []
(Additional reporting by Alejandro Barbajosa; editing by James
Jukwey)
