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Oil gains as Fed's low rates likely to attract investors

Move makes dollar assets more attractive

Gulf News

London: Oil rose for a second day in New York on speculation that Federal Reserve plans to keep US interest rates near a record low will bolster investor demand for commodities.

Futures advanced as much as 0.9 per cent after the Fed's announcement sent the dollar to its lowest in more than a month against the euro, making assets priced in the US currency more attractive. The Federal Open Market Committee said it expects its benchmark interest rate to stay at "exceptionally low levels" at least through late 2014. A wider ban on Iranian oil than that announced this week by the European Union could boost crude by $30 a barrel, the International Monetary Fund said.

"It's a big commitment from the central bank," said Sintje Boie, who correctly predicted in November that oil prices would slide by year-end. "For the markets, it's a liquidity thing. All this liquidity must go somewhere, and so we have some money also going into oil. Prices are higher because of this bubble of liquidity."

Crude for March delivery rose as much as 90 cents to $100.30 a barrel on the New York Mercantile Exchange and was at $100.18 in London. The contract rose 45 cents to $99.40 on Wednesday.

Prices are up 15 per cent in the past year.

Brent oil for March settlement was up $1.16, or 1.1 per cent, at $110.97 a barrel on the ICE Futures Europe exchange in London. The European contract's premium to Nymex crude was $10.71 a barrel. That's down from a record $27.88 on October 14.

Near-zero rates

The Fed had previously pledged to extend near-zero interest rates through mid-2013. Chairman Ben Bernanke also said the central bank is considering additional asset purchases to improve growth. The dollar was down 0.4 per cent at $1.3161 to the euro after earlier reaching $1.3175, its weakest since December.

"We're getting a bit of a rally on expectations that the Fed will be accommodative," said Jeremy Friesen, a commodity strategist at Societe Generale in Hong Kong who predicts oil to remain "rangebound" at about $100 a barrel in the coming months.

  • 0.9%: gain in futures afterFed announcement
  • $100.30: a barrel crude for March delivery rose
  • 15%: rise in prices inthe past year