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Oil rises past US$106 ahead of Fed policy decision

Source: Agencies | September 19, 2013, Thursday | Online Edition

The price of oil recouped some recent losses and rose to over US$106 a barrel yesterday as traders prepared for an expected reduction in the US Federal Reserve's massive monetary stimulus.

By early afternoon in Europe, benchmark oil for October delivery was up 66 cents to US$106.08 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell US$1.17 to close at US$105.42 on Tuesday. Oil fell US$1.62 on Monday.

Following the 2008 financial crisis, the US central bank has been buying bonds and other assets to push down interest rates and make loans more available. Global stocks and commodities surged as the new money generated by the unconventional program, which is currently running at US$85 billion a month, flowed through the financial system.

The Fed, however, is widely expected to begin winding down the program as the US economy shows signs of a sustained albeit gradual recovery and could announce the first reduction yesterday following a two-day policy meeting.

The prospect of a reduction in stimulus pushed down oil prices earlier this week, but now traders are looking ahead, seemingly less fearful of the impact of "tapering," since analysts believe the Fed will keep official interest rates low to keep the US economy chugging along.

Analysts at Capital Economics said in a commentary that "a small reduction is probably now discounted and the Fed may choose to reiterate its conditional commitment to keep interest rates very low for a long period."

Investors will also be monitoring fresh information on US stockpiles of crude and refined products.

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