Oil hits six-month peaks on falling dollar, Fed move

4th November 2010, Comments 0 comments

World oil prices hit fresh six-month peaks on Thursday as the dollar slumped on the back of the US Federal Reserve's new huge stimulus package aimed at boosting the American economy.

Brent North Sea crude for delivery in December delivery rallied as high as 87.59 dollars, reaching a level last seen on May 4. It later stood at 87.46, up 1.08 dollars from Wednesday's close.

New York's main contract, light sweet crude for December, surged to a similar high point at 86.05 dollars, before pulling back to 85.88, up 1.19 dollars.

The dollar tumbled on Thursday after the Fed announced that it would launch a new asset-buying plan, or quantitative easing (QE), worth 600 billion dollars, to bolster the nation's sluggish economic recovery.

In reaction, the European single currency soared to 1.4264 dollars, reaching the highest level since January 20, as traders fretted that the Fed policy could water down the value of the US unit.

"The Fed announced yesterday evening that it would be buying up more US treasuries. The much weaker US dollar as a result is now giving impetus to commodity prices," said Commerzbank analyst Carsten Fritsch.

A weak greenback makes dollar-priced crude cheaper for buyings using stronger currencies. In turn, that tends to stimulate oil demand and prices.

Crude futures had already surged in New York on Wednesday after the Fed unveiled the plans that have been dubbed QE2 by traders.

"The additional liquidity could also flow into commodity markets and lead to excessive oil prices on a more permanent basis," Fritsch added.

The US government's Department of Energy meanwhile published a weekly snapshot of crude oil inventories, detailing its stockpiles for the week ending October 29.

The DoE said on Wednesday that US crude stockpiles rose by two million barrels to 368.2 million last week. Analysts had forecast a smaller gain of 800,000 barrels.

"The lower implied demand for oil does suggest ... that the fundamental situation on the oil market is still weak," added Fritsch.

"But this is only likely to dampen the rise in prices at the moment and not halt it entirely."

© 2010 AFP

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