Fed Stimulus Sends Crude to Four-Month High
Oil futures climbed to a four-month high Friday and briefly topped $100 a barrel in the wake of the Federal Reserve's latest plan to boost the U.S. economy through bond purchases.
The Fed's announcement Thursday sent the dollar sliding against other major currencies for a second straight session, boosting the price of dollar-denominated commodities such as crude oil.
Although many traders had expected the Fed to act Thursday, the open-ended nature of the stimulus program took many market participants by surprise, prompting additional buying.
"The Fed has always given an exit strategy on this policy," said Phil Flynn, analyst at Price Futures Group, a commodities brokerage in Chicago. "Now there is no exit strategy."
Light, sweet crude for October delivery settled 69 cents, or 0.7%, higher at $99 a barrel on the New York Mercantile Exchange, its highest finish since May 4. The contract briefly topped $100 a barrel in intraday trading.
Brent crude on the ICE futures exchange settled 78 cents, or 0.7%, higher at $116.66 a barrel.
The Fed on Thursday unveiled a plan to buy $40 billion in mortgage-backed securities every month and said it would keep buying until the job market improves. The measure was seen as an unusually strong commitment by the Fed, whose previous bond-buying initiatives came with a specific end date.
The announcement sent the dollar sliding against other major currencies. A weaker dollar tends to boost the price of oil because the crude trade is denominated in dollars, making the commodity more attractive to holders of other currencies and to investors seeking returns.
The WSJ Dollar Index, which measures the dollar against a basket of currencies, sank to a four-month low and was recently at 68.979.
"The value of the dollar is getting crushed," said Jason Williams, energy broker at Coquest in Dallas.
Additional stimulus of some kind by the Fed was widely expected, particularly after last week's disappointing U.S. jobs report. Oil prices have risen 2% in September, largely on expectations that the central bank would act.
In spite of high oil prices, demand for crude in the U.S. remains at its lowest levels in years as high unemployment keeps motorists off the road. The U.S. is the world's biggest consumer of crude.
Geopolitical tensions also have kept crude prices elevated. Sanctions on Iran have kept the country's oil off the market and spurred worries of a possible military conflict or supply blockade. The recent spate of anti-U.S. violence in the Arab world also has raised concerns.
"The market is wickedly strong, and a lot of that has to do with what's going on overseas," said Tony Rosado, broker at Dorado Energy Services in New York.
Front-month October reformulated gasoline blendstock, or RBOB, settled 5.34 cents, or 1.8%, higher at $3.0156 a gallon. October heating oil settled 2.82 cents, or 0.9%, higher at $3.2395 a gallon.
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