Sat, Sep 15, 2012 - Page 13 News List

Oil breaks US$100 after Fed vows action on economy


The price of oil yesterday soared past US$100 a barrel for the first time since early May, after the US Federal Reserve announced a plan to jolt the US economy and unrest in the Middle East heightened supply concerns.

By early afternoon in Europe, benchmark oil for delivery next month was up US$1.84 at US$100.15 a barrel in electronic trading on the New York Mercantile Exchange. The contract closed at US$98.31, up US$1.30, on Thursday.

In London, November Brent crude was up US$1.75 at US$117.63 a barrel on the ICE Futures exchange.

The Fed said it would spend US$40 billion a month to buy mortgage-backed securities for an indefinite period and extended a plan to keep short-term interest rates at record-low levels through the middle of 2015.

Expectations of action by the Fed, as well as the European Central Bank and China’s government, have balanced gloomy economic news and kept oil in a narrow range in the past few weeks.

Oil analyst Stephen Schork said that the Fed decision was tantamount to “flooding the market with dollars,” which weakens the US currency and helps make crude a cheaper and more attractive investment for traders using other currencies.

Yesterday, the euro rose to US$1.3107 from US$1.2987 late on Thursday in New York.

“With additional liquidity looking for a home, commodity markets are bound to benefit given prevailing ultra-low global interest rates,” Economist Intelligence Unit commodities analyst Caroline Bain said. “From a more fundamental perspective, further monetary easing in the US should be positive for US economic growth and wider global growth in as much as higher US aggregate demand provides stimulus across the world.”

Traders also kept a close eye on unfolding unrest in the oil-rich Middle East.

Protesters stormed the US embassy compound in Yemen’s capital on Thursday. Ongoing clashes have been taking place around the US mission in Cairo, and the US ambassador to Libya was killed on Tuesday.

“The oil market now simply needs some little geopolitical spark to attract the financial flows,” Petromatrix analyst Olivier Jakob said in Switzerland.

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