Crude oil prices advanced in Asian trading Friday, extending overnight rally after the U.S. Federal Reserve launched another round of quantitative easing to rejuvenate the 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 the 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 on Thursday after the Federal Reserve announced that it will purchase $40 billion 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 till December 2012.
Investors cheered to note that the indication is that the Fed would keep purchasing the mortgage-backed securities until the labor market outlook improved 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 counter parts 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.
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“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 a barrel on the New York Mercantile Exchange. Brent crude oil rose 94 cents to settle at $116.90 a barrel.