Oil prices recovered some lost ground Friday after Federal Reserve chairman Ben Bernanke said the Fed stands ready to do whatever it takes to support economic recovery.
The benchmark West Texas Intermediate October futures contract gained 2.5% on Friday, settling at $75.17 a barrel and wiping out losses from the beginning of the week. The expiring September contract closed at $73.46 a week ago.
In a widely anticipated speech Friday morning, Bernanke stopped short of announcing new measures to inject money into the economy but made it clear that the central bank was monitoring the situation closely and would act if necessary to prevent a deflationary spiral.
The Federal Open Market Committee will strongly resist deviations from price stability in the downward direction, the Fed chief said in a speech at the annual central bank gathering in Jackson Hole, Wyo.
Bernanke's remarks came just after the Commerce Department revised estimates of GDP growth in the second quarter downwards, to an annual rate of 1.6% from its initial estimate of 2.4%. Bernanke's comments at first sent markets down further because he was not specific about when or what the Fed would do. But stock and commodity prices began to rise once participants accepted that the takeaway from Bernanke's speech was that the Fed stands ready to act.
In the 2008-09 financial crisis, the Fed doubled the size of its balance sheet, injecting liquidity into the economy as it bought mortgage-backed securities. Earlier this month, as data showed the economy slowing down, the Fed said it would maintain its balance sheet at the current high level by reinvesting in long-dated Treasuries when the other securities matured.
Economic news dominated markets during the week. Housing data showed sales both of existing homes and new homes registering significant drops, indicating a further drag on an increasingly sluggish economy.
Analysts cautioned that fundamentals for oil prices are still not good even with the promise of some monetary stimulus for the economy if needed. Inventories remain at record highs and will continue to weigh on prices, they said.
The U.S. Energy Information Administration reported on Wednesday that crude oil inventories had risen a further 4.1 million barrels, much more than the 1.1 million-barrel consensus forecast.
By. Darrell Delamaide for Oilprice.com who offer detailed analysis on Oil, alternative Energy, Commodities, http://oilprice.com/Finance/Economy/ target=new>Investing and Geopolitics. Visit: http://www.oilprice.com