Fed bond buy could push oil prices upward

Some analysts think gasoline and heating oil prices are set to rise again because of yesterday's action by the Federal Reserve to shore up the economy with the purchase of billions of dollars in government bonds. But others say the Fed's action already is built into oil prices.

Regular gasoline averaged $3.036 a gallon Wednesday on Long Island, the AAA said, unchanged from a week earlier. Home heating oil averaged $3.15 a gallon here as of Monday, according to a survey of full-service dealers done by the state Energy Research and Development Authority. That's up by less than a penny from a week earlier.

The Federal Reserve's planned purchase of $600 billion worth of long-term government bonds by the middle of next year - announced Wednesday - has been anticipated since late August by many oil traders and has helped to push prices upward since then. The Fed took the action to push down interest rates for consumers and for businesses to expand and hire, but many analysts believe reduced interest rates are likely to further encourage investors to switch to higher yielding commodities, like oil, while the weakened dollar will make more oil more expensive, since oil is priced worldwide in dollars.

"I expect we're going to start to see gasoline prices kick on up," Andy Lipow, president of Houston consulting company Lipow Oil Associates LLC, said. Heating oil price, he says, will depend heavily upon the severity of the winter, which many forecasters believe will be milder than last year, but he notes rising demand elsewhere in the world for "distillates," which include diesel fuel and heating oil.

But Peter Beutel, an energy consultant and president of Cameron Hanover Inc. in New Canaan, Conn., says the next few days on the stock, currency and commodities markets will provide a clearer picture. He adds, "It is very possible we've already seen the reaction."

Crude oil futures rose yesterday by 79 cents to settle at $84.69 a barrel on the New York Mercantile Exchange, while the dollar fell to $1.4139 - what Bloomberg News said is a nine-month low versus the euro.