Oil rallied above $49 a barrel today, after a surprise move by the Federal Reserve to buy government bonds on a large scale thrashed the dollar and revived hopes the battered US economy could soon begin its recovery.
The US Federal Reserve today stunned markets by announcing it would pump another $1 trillion into the ailing US economy by buying long term government debt for the first time since the 1960s and by expanding its purchases of mortgage bonds.
US light crude for April delivery rose 96 cents to $49.10 a barrel by 7.48am, after having touched $49.83 earlier, erasing some of previous session's losses. London Brent crude rose 69 cents to $48.35.
“It's a combination of a drop in the US dollar and the Fed's move that has pushed up oil prices,” said David Moore, a commodity strategist at the Commonwealth Bank of Australia.
“But I suspect more of it is probably on hopes that US policy stimulus would help turn the economy around, or at least stabilise it.”
The dollar inched up against a basket of currencies today, after logging its biggest daily fall since 1985, as the Fed's move to buy long-term Treasuries, aimed at resuscitating lending, prompted a sharp fall in market interest rates.
The Fed's move also sent Asian stocks to a five-week high, as bank shares helped extend a recent rally, and on broader optimism that a stronger US economy will help the continent's export-dependent economies.
Still, analysts cautioned that a continued weakness in demand could limit oil's gains in the near term.
Earlier yesterday, oil fell after data showed US crude inventories swelled to the highest level in nearly two years and the World Bank cut its 2009 forecast for China's economic growth by one percent to 6.5 per cent.
In its weekly report, the US Energy Information Administration (EIA) said crude oil stocks rose 2 million barrels to 353.3 million last week - double the increase forecast by analysts - while gasoline supplies jumped by 3.2 million barrels, countering forecasts of a 1.2-million-barrel drop.
Slumping demand and rising inventories have helped drag oil off record highs over $147 a barrel struck in July as the economic meltdown hit consumption across the globe.
Reuters