Oil dips towards $124 on Fed comments
LONDON OIL prices fell towards $124 a barrel on Wednesday on worries demand could be curtailed after the US central bank dampened prospects of more economic stimulus and after Spain had to pay more for its debt, highlighting the plight of the eurozone.
News Saudi Arabia would probably keep output high in the event of a stocks release by consumer countries also tempered prices, while eyes were on the latest release of weekly oil inventories data from the world’s top oil consumer, the United States, at 1530 GMT.
Brent crude futures fell by 74 cents to $124.12 a barrel by 1216 GMT, after earlier touching a low of $124.05. US crude futures lost $1.16 cents to $102.85, after falling by more than $1 in the previous session.
Minutes from the Federal Reserve policymakers’ meeting in March revealed reduced appetite for a third round of quantitative easing in view of timid improvements in the US economy.
“There is disappointment in the market relative to the FOMC meeting as it makes quantitative easing round 3 more elusive,” said BNP Paribas’ head commodities strategist Harry Tchilinguirian.
“And the reaction you got from that was a strong push in the US dollar which had an impact on commodity prices.
This should be more or less temporary: at the same time you have to remember the fact that Fed is committed to low interest rates until 2014.” In the absence of further money printing, the US dollar index firmed. A stronger dollar can render greenback denominated commodities such as gold and oil more expensive to other currency holders.
“What we’re seeing this morning is the aftermath of the release of the Fed minutes tempering hopes of a QE for now, pushing the dollar stronger and oil down,” said Olivier Jakob from energy consultants Petromatrix.
“QE has had a clear effect on some of the commodity markets over the last few years,” said the head of Natixis’ commodity research Nic Brown.
Between the Fed’s announcement of a second round of quantitative easing in November 2010 until its end in June 2011, Brent futures rallied by around 35 percent.
In Europe, Spain was forced to pay more to borrow 2.6 billion euros of medium term bonds on Wednesday, jolting the markets, as this week’s tough budget failed to calm investors’ nerves about the country’s finances.
Investors awaited weekly stocks details from the Energy Information Administration.
Data from the American Petroleum Institute (API) showed a larger-than-expected rise in crude inventories, up by 7.8 million barrels in the week to March 30.