Oil rises on weaker dollar, Fed stimulus hopes

Oil rises on weaker dollar, Fed stimulus hopes

Perth: Oil rose to nearly $82 on Monday, buoyed by expectations that the US Federal Reserve would commit to a new round of monetary stimulus this week and prompt further weakness in the dollar.

US crude for December rose 31 cents to $81.74 a barrel by 12:50pm, ICE Brent rose 15 cents to $83.30.

“The market is looking forward to the stimulus, or quantitative easing," said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.

The US Federal Reserve is widely expected to commit to a fresh round of bond purchases known as quantitative easing to pump more money into the sluggish US economy.

A survey by the New York Federal Reserve of dealers and investors included scenarios of up to $1 trillion, a figure larger than recent estimates.

Some analysts suggest that the Fed would start with $80 billion to $100 billion a month, but leave itself the option to do more.

“Nobody is exactly clear how much and when the quantitative easing will start, although people have already started to price in some of the quantitative easing," said Serene Lim, a Singapore-based oil analyst with ANZ.

The US dollar slipped against major currencies on Monday, losing early gains against the yen.

The weak US dollar has supported oil prices for months, pulling oil prices in October to a trading range between $80 and $85, up from between $72 and $80 in September.

Saudi Arabia’s oil minister said on Monday he hoped oil prices would stay where they are now, and more oil would be pumped into the market if needed.

But markets may have been overly optimistic about the Fed’s stimulus, according to Barratt.

“We are actually feeling that it won’t be as aggressive as what people expect, so we feel the market is heading itself up for a little bit of a dump," he said.

Unexpectly strong manufacturing data from China, the world’s second-largest economy, also helped boost boost oil prices and drove Asian share prices up.

“That infers that we’re expecting more industrialization into 2011, not just base industrialization, but also financial services," said Geoff Howie, sales and markets strategist at MF Global in Singapore.

US economic growth data released Friday also underpinned oil prices as data showed that gross domestic product in the world’s biggest oil consumer inched up from the previous quarter.

“US GDP has come out in line with expectations and not too bad. I think the markets are just coming off on the back of that," Barratt said.

The US economy grew at a 2% annual rate, up from 1.7% in the second quarter.