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Oil rises ahead of Fed meeting, as investors expect further US gov't stimulus
NEW YORK (AP) ' Oil climbed to near $87 per barrel Tuesday on expectations that the Fed will announce new measures to stimulate the U.S. economy.
Benchmark crude rose $1.11 to finish at $86.92 per barrel in New York. Brent crude, which is used to price oil produced in foreign countries, gained $1.40 to end at $110.54 in London.
The Federal Reserve started a two-day meeting on Tuesday. The Fed has pumped money into the economy before by buying billions of dollars in bonds, and that influx of cash helped boost oil and gasoline last fall.
Fed Chairman Ben Bernanke hasn't said specifically what the central bank might do this year as the U.S economy moves at a snail's pace.
The dollar dropped on Tuesday in relation to other major currencies, and that tends to push oil lower. Oil is traded in U.S. currency and tends to fall when the dollar rises and makes crude more expensive for investors with foreign money.
Independent oil analyst Jim Ritterbusch said he doesn't expect the Fed to repeat its previous stimulus program, but any stimulus would help. If the economy gets extra support from the government, investors will likely expect energy demand to rise and pour more money into oil, he said.
Oil rose Tuesday despite a stark warning from the International Monetary Fund that the world economy is entering a "dangerous new phase." The IMF said that a drop in bank lending and weak consumer confidence is strangling the U.S. and European economies.
It downgraded its growth forecast for the U.S. and Europe through the end of next year. The IMF expects the U.S. economy to grow just 1.5 percent this year and 1.8 percent in 2012. The eurozone economy will grow 1.6 percent this year and 1.1 percent next year, the IMF said.
"Any way you slice it, energy demand is poor," analyst and trader Stephen Schork said. "Yet oil keeps rising." Schork said that oil is following the stock market higher, and it's also being treated as a relatively safe investment like silver and gold.
In other energy trading, heating oil rose 1.69 cents to finish at $2.9616 per gallon and gasoline futures fell about half a cent to end at $2.7014 per gallon. Natural gas was 3.1 cents lower at $3.798 per 1,000 cubic feet.