SINGAPORE: Brent crude edged up towards $111 a barrel on Thursday, extending gains for a second day after the United States kept its monetary stimulus programme intact, boosting global equity and commodity prices.
Brent and U.S. oil gained the most in three weeks in the previous session as the U.S. Federal Reserve's decision to delay the wind down of its massive monetary stimulus took investors by surprise, weakening the dollar and stoking demand for risky assets.
Dollar-denominated commodities become more attractive to holders of other currencies when the greenback softens.
Brent crude for November delivery had gained 18 cents to $110.78 a barrel by 0647 GMT, while U.S. crude was up 43 cents at $108.50. Brent's premium to U.S. crude
Asian equities and currencies jumped while the U.S. dollar languished at a seven-month low against a basket of major currencies and bond yields slid after the Fed's announcement.
"It translates to a weaker dollar and higher prices for all risk assets as we continue to have money liquidity in oversupply," Tony Nunan, a risk manager at Mitsubishi Corp, said of the Fed's decision.
"This is going to be the story for the rest of the year."
Keeping the monetary stimulus is also expected to alleviate oil import cost pressures faced by emerging markets as their currencies rebound and this could boost their oil demand, Barclays analyst Miswin Mahesh said in a note.
"News of the Fed refraining from tapering comes at the same time as relatively low spare capacity and relatively low crude and product stocks," he said.
"These factors are expected to remain prevalent in the next year, reinforcing our price view of a $110 per barrel average for Brent in 2014."
LOW INVENTORY
Crude inventories in the United States fell last week to the lowest level since March 2012 after data from the U.S. Energy Information Administration showed a larger-than-expected drop of more than 4 million barrels.
In the Middle East, geopolitical tensions continued to underpin oil prices although fears of a U.S.-led military strike on Syria eased as Western powers met for a second day of talks on a Western-drafted resolution on eradicating Syria's chemical arsenal.
Iraqi oil exports remained curbed by a pipeline leak and maintenance work. Libya's crude production has recovered to 620,000 barrels per day (bpd), compared with its pre-war capacity of 1.6 million bpd, two state National Oil Corp (NOC) officials said on Wednesday.
Analysts at Goldman Sachs estimated the combined loss from Libya and Iraq is likely to exceed 100 million barrels by the end of September, keeping global oil markets tight in the next couple of months.
"It comes at a time when total inventories in the OECD are nearly 80 million barrels lower, and nearly all major regional markets are far tighter, as evidenced by strong physical grade differentials and nearly universally backwardated markets," Goldman analysts said in a note.
"This fundamental tightness will support prices and we maintain our near-term Brent price target of $115 a barrel." (Reuters)
