Oil rises towards $86 on Fed, weak dollar

Oil rises towards $86 on Fed, weak dollar

London: Oil rose on Thursday for a fourth day, hitting fresh six-month highs near $86 a barrel, after the dollar fell following a US Federal Reserve decision to pump more money to stimulate the economy of the world’s top oil user.

The dollar fell around 0.6 percent against a basket of currencies, triggering a commodities rally as investors sought alternatives to cash.

The US central bank on Wednesday said it would buy around $75 billion in Treasury bonds each month through mid-2011, totalling around $600 billion.

By 4:50pm, US crude for December was up 97 cents at $85.66 a barrel after earlier touching $86.05. ICE Brent rose 88 cents to $87.26.

“The market is on an upwards track," said Roy Jordan, oil analyst at Facts Global Energy.

“The quantitative easing (QE) is expected to weaken the dollar and as the dollar weakens people start thinking about putting their money into commodities to offset the currency and it’s cheaper for importing countries to buy crude."

The Fed measures were in line with expectations, but less aggressive than the most bullish estimates of about $2 trillion.

Later on Thursday, the Bank of England (BoE) and the European Central Bank will both meet on monetary policy and neither is expected to change rates from near record lows.

The BoE is likely to reject a new bout of quantitative easing on Thursday, with UK inflation and unemployment levels comparing favourably to the United States.

Wide anticipation of the Fed stimulus measures -- meant to avert deflation and create jobs by easing long-term borrowing costs -- in October drove oil prices out of their previous range between $70-$80 a barrel.

Top oil exporter Saudi Arabia earlier this week shifted its price range up to $70-$90 a barrel.

Most analysts think that fluctuations in the dollar will remain the principal driver in the oil market, although some have warned of long-term dangers of QE for Asian demand growth.

“We have trouble seeing how much longer the current run can extend to, given that at some point, higher commodity prices will lead to even higher inflation and interest rates in emerging countries," said Edward Meir, analyst at MF Global, adding that the dollar was currently the “sole driver."

Weekly jobless claims data out of the United States due at 6:00pm, are expected to offer further insights into the state of the economy.

US data the previous session showed a slow-paced economic recovery was beginning to gain some momentum, with private employers adding more jobs than expected in October after laying off workers in the previous month.

On the supply side, US crude inventories rose by a more-than-expected 1.95 million barrels last week as refinery utilisation dropped, according to a weekly report from the Energy Information Administration on Wednesday.