Oil investors push price past $101

NEW YORK -- Oil futures rallied again Wednesday, pushing briefly past $101 a barrel after the Federal Reserve lowered its forecast for economic growth this year, convincing energy investors the central bank will slash interest rates further. At the pump, meanwhile, gas prices rose another 2 cents overnight.

The Fed said damage from the housing slump and problems in the credit markets will slow economic growth to between 1.3 percent and 2 percent this year, down from a previous forecast for GDP growth of between 1.8 percent and 2.5 percent.

Oil investors can interpret such news in one of two ways: Selling on concerns the demand for oil will cool as the economy slows; or buying on the prospect that interest rates will fall, weakening the dollar and feeding new buying of oil futures. On Wednesday, they chose the latter view.

"The Fed was … the catalyst to get us going here," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

The contract for March delivery of light sweet crude, which was expiring later Wednesday, rose 73 cents to settle at a record $100.74 on the New York Mercantile Exchange after earlier rising as high as $101.32, a new trading record. On Tuesday, the contract jumped $4.51 a barrel.

Falling rates tend to weaken the dollar, and crude futures offer a hedge against a falling dollar. Also, oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling. In the moments after the Fed released its forecast, oil prices spiked sharply higher.

Two new economic reports Wednesday suggested the economy is cooling. The Labor Department said its Consumer Price Index, a measure of inflation, rose by 0.4 percent last month, more than economists expected. The Commerce Department, meanwhile, said construction of new homes and apartments rose by 0.8 percent in January but applications for building permits, an indicator of future activity, fell by 3 percent.

At the pump, gas prices rose 2.1 cents to a national average of $3.053 a gallon Wednesday, according to AAA and the Oil Price Information Service.

The average price of a gallon in the Chicago area Wednesday was $3.163, according to the AAA.