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By Satya Nagendra Padala: Subscribe to Satya's RSS feed | September 14, 2012 8:02 AM GMT
Crude oil prices advanced in Asian trading Friday, extending an overnight rally after the U.S. Federal Reserve launched another round of quantitative easing to rejuvenate economic growth.
Light sweet crude for October delivery gained 0.90 percent, or 88 cents, to $99.19 a barrel in electronic trading on the New York Mercantile Exchange during Asian trading hours, while Brent crude oil futures for October delivery advanced 0.90 percent, or $1.04 cents, to $116.92 a barrel on the ICE futures exchange in London.
Oil futures rallied to their four-month high Thursday after the Federal Reserve announced that it would purchase $40 billion in mortgage-backed securities per month for an open-ended period until the labor market improves substantially. This, combined with the continuation of Operation Twist, will increase the FOMC's holdings of long-term securities by $85 billion per month until December.
Investors were pleased to note that the Fed will keep purchasing the mortgage-backed securities until the labor market improves sufficiently. The Fed stated that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens." The central bank also extended its conditional commitment to leave its policy rate at near-zero until mid-2015.
The U.S. dollar declined against major counterparts following the announcement of the aggressive stimulus program. A weak dollar is usually supportive to dollar-denominated commodities like oil as they tend to move inversely with the greenback.
"The seemingly open-ended purchase of mortgage-backed securities at $40 billion per month gives the markets the QE3 that had been priced in to a great degree. The Fed's policy moves will likely push oil prices higher, but you must be mindful that the policy considerations are a reaction to underlying conditions that are not favorable to a robust demand environment for oil, at the same time," John Kilduff, partner at Again Capital LLC in New York, told Reuters.
Light sweet crude for October delivery surged 1.3 percent, or 1.30, Thursday and settled at $98.31 per barrel on the New York Mercantile Exchange. Brent crude oil rose 94 cents to settle at $116.90 per barrel.
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