Oil edges above $83 as focus moves to Fed

Oil edges above $83 as focus moves to Fed

London: Oil rose on Tuesday ahead of an expected decision by the Federal Reserve to pump more money into the US economy and after an apparent upward shift in price tolerance among oil producing countries.

The market was expected to trade in a tight range until Wednesday’s decision by the US Federal Reserve, which analysts believe will be to start a second round of “quantitative easing," also known as QE2.

The US central bank is widely expected to decide to buy around $500 billion in longer-term Treasuries over about six months in a move that could encourage more dollar weakness.

The dollar fell against a basket of currencies on Tuesday, adding extra support to oil and commodities. A fall in the dollar makes dollar-denominated commodities cheaper.

US crude for December rose 36 cents to $83.31 a barrel at 1034 GMT, adding to gains of nearly 2% the previous session. ICE Brent climbed 17 cents to $84.79.

Traders and analysts were wary ahead of the Fed’s move, expected at the end of its two-day meeting starting Tuesday.

“We would be very cautious about going long at current levels in practically any of the markets, as we would want to wait and get this week’s critical economic and political events behind us," said Edward Meir, senior commodity analyst at brokers MF Global.

Commerzbank commodities analyst Carsten Fritsch agreed.

“The main story is the what the Fed will do tomorrow and what it will do to the dollar," Fritsch said. “The risk is that the markets are disappointed in the scale of QE2, that it is less than some people are expecting."


The Fed’s pending announcement overshadowed comments from Saudi Arabia’s Oil Minister Ali al-Naimi on Monday that consumers would be comfortable with oil prices rising as high as $90 a barrel.

Qatar, another member of the Organization of the Petroleum Exporting Countries, also said a $70 to $90 price range would be reasonable, but not anything higher.

For much of this year, crude oil prices have been stuck between $70 and $80 per barrel, a range that OPEC has said for the last two years it has seen as ideal for both producers and consumers.

But on Monday Saudi Arabia appeared to raise this range.

Naimi’s comments were understood to signal the world’s top oil exporter could allow prices to climb as high as $90.

“It was interpreted as a significant escalation in the price band the Saudis are envisioning," Meir said.

Industry group the American Petroleum Institute will issue its latest US crude oil inventory data later on Tuesday.

Analysts expect stockpiles in the world’s largest energy consumer to have risen for the fourth time in five weeks last week as imports increased.