Oil prices rise as Fed meets on interest rates

Oil prices rose Tuesday as the Federal Reserve began a two-day policy meeting on interest rates.

The U.S. government stepped in to bail out faltering banks and other giant businesses over the past year, which has helped send the dollar tumbling and the price of oil sharply higher.

Since oil is largely bought and sold in dollars, investors holding stronger currencies can buy more crude for less and have done so in recent months, sending the price of benchmark crude above $80 near the end of October.

The central bank isn't expected to take any action on interest rates, yet statements issued after such meetings can hint at the Fed's take on the state of the economy.

"Oil is still being controlled by larger macroeconomic forces and not just demand and demand expectations," said PFGBest analyst Phil Flynn. "The main concern is still all about what the Federal Reserve might do."

Crude has been plentiful because the global economic slowdown has crimped demand, particularly in the United States.

Most analysts believe crude supplies in the U.S. grew again last week, and the Energy Department on Wednesday will release its weekly supply and demand figures for oil and gasoline.

Benchmark crude for December delivery gained $1.47 to settle at $79.60 a barrel Tuesday on the New York Mercantile Exchange.

The steady rise in crude prices has pulled the retail price for gasoline higher.

Pump prices rose for more than two week straight before leveling off over the weekend.

The average price for a gallon of regular gasoline fell a half penny overnight to $2.686, according to auto club AAA, Wright Express and Oil Price Information Service. That's 22.5 cents more than a month ago, and 27.1 cents more than gas cost at this time last year.

Gasoline consumption dropped last week but continues to edge higher from a year ago, when the financial crisis helped drive the economy further into a recession.

Consumption for the week ended Friday declined 0.4 percent from the previous week, but it is up 3.3 percent from a year ago, according to the weekly MasterCard SpendingPulse report.

MasterCard's report is based on aggregate sales activity in the MasterCard payments network, coupled with estimates for all other payment forms, including cash and check.

In other Nymex trading, heating oil rose 2.73 cents to settle at $2.0733 a gallon. Gasoline for December delivery gained 1.32 cents to $2.0035 a gallon. Natural gas for December delivery gained 9.8 cents to settle at $4.922 per 1,000 cubic feet.

In London, Brent crude for December delivery added $1.56 to settle at $78.11 on the ICE Futures exchange.

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Associated Press Writer Alex Kennedy in Singapore contributed to this report.