Oil rose to the highest level in more than four months as the Federal Reserve maintained an asset-buying program to boost the economy.

Oil advanced for a third day and the dollar weakened against the euro after the Fed said at the conclusion of a two- day meeting that it will keep purchasing securities at the rate of $85 billion a month. Crude headed for the biggest monthly gain since August as the Labor Department may say on Feb. 1 that hiring increased in January.

“There’s increasing confidence about the economy, expectations for a positive jobs number Friday, and the Fed said it’s going to continue with stimulus,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “Oil is moving higher because there’s reason to be optimistic about the economy.”

West Texas Intermediate for March delivery rose 37 cents, or 0.4 percent, to $97.94 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 14. Prices are up 6.7 percent this month. Trading was 1.7 percent below the 100- day average for the time of day at 2:40 p.m.

Brent for March settlement added 54 cents, or 0.5 percent, to $114.90 a barrel on the London-based ICE Futures Europe exchange. Trading was 9 percent above the 100-day average.

The Fed asset purchases will remain divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities.

Labor Market

The central bank repeated that the purchases will continue “if the outlook for the labor market does not improve substantially.” It also left unchanged its statement that it planned to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and inflation remains below 2.5 percent.

The euro rose as much as 0.7 percent to $1.3587, surpassing the $1.35 level for the first time in more than a year. A stronger euro and weaker dollar boost dollar-denominated oil’s appeal as an alternative investment.

“A weakening U.S. dollar will provide some support to crude prices,” said Tom Doremus, an analyst at Tradition Energy in Stamford, Connecticut.

The Labor Department may say on Feb. 1 that the U.S. economy added 165,000 nonfarm jobs in January, up from 155,000 a month ago, according to a Bloomberg survey. The U.S. is the world’s biggest oil-consuming country.

Mideast Conflict

Oil also climbed as Agence France-Presse reported Israeli jets attacked a weapons-transport convoy near Syria’s border with Lebanon.

The AFP report, citing people it didn’t identify by name, comes three days after Israel’s Prime Minister Benjamin Netanyahu issued warnings about the dangers posed by Syria’s chemical-weapons arsenal in a country suffering a civil war.

“It reminds us that the geopolitical risk factors are still high,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

Oil fell earlier as U.S. inventories gained more than twice as much as expected last week as the nation’s economy unexpectedly shrank in the fourth quarter.

Stockpiles increased 5.95 million barrels in the week ended Jan. 25 to 369.1 million, the Energy Information Administration, the Energy Department’s statistics arm, reported. Analysts surveyed by Bloomberg expected a gain of 2.5 million.

“This is a bearish report for crude oil and is further evidence that the U.S. crude-oil market is not physically tight,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Cushing Inventories

Inventories at Cushing, Oklahoma, the delivery point for New York oil futures, grew 0.6 percent to 51.7 million barrels.

Oil flows through the Seaway pipeline, which runs from Cushing to the Gulf Coast, were curtailed last week by electrical problems at the line’s Jones Creek, Texas, terminal.

The expanded 400,000-barrel-a-day Seaway, from 150,000, was limited to bringing 175,000 barrels a day to Jones Creek, Rick Rainey, a Houston-based spokesman for pipeline co-owner Enterprise Product Partners LP (EPD), said Jan. 23.

“Expectations that the expanded Seaway pipeline would reduce inventories at Cushing are not bearing fruit here,” Evans said.

The EIA also reported that U.S. refineries operated at an 85 percent rate, up 1.4 percentage points from a week earlier. Analysts expected a drop of 0.35 percentage point.

U.S. gross domestic product dropped at a 0.1 percent annual rate last quarter, weaker than any forecast in a Bloomberg survey.

“The GDP number is a big surprise,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors.

Electronic trading volume on the Nymex was 434,647 contracts as of 2:52 p.m. It totaled 649,676 contracts yesterday, 31 percent above the three-month average. Open interest was 1.55 million.

sourced from bloomberg.com January 29, 2013