LONDON: Oil prices rose on Thursday on the back of a weaker dollar after the US Federal Reserve said it would keep interest rates low for longer than planned, although an increase in US weekly jobless claims capped gains.
Markets cheered the Fed’s rate outlook and European shares, base metals, gold and the euro all rose as the comments helped counter concerns among investors about Greece’s debt crisis worsening and hurting the global economy.
Weekly jobless claims in the United States, the world’s top oil consumer, rose to 377,000, above a consensus forecast for 370,000.
By 1454 GMT, front-month Brent crude futures were $1.80 higher at $111.61 a barrel, reversing two days of losses, and just off an intra-day high of $111.89 per barrel.
US crude futures were $1.72 firmer $101.12, rising for a second day.
Oil prices climbed on Thursday after Fed Chairman Ben Bernanke’s comments that the US central bank could consider further monetary easing, which weighed on the dollar.
A weaker greenback renders dollar-denominated assets such as crude cheaper for holders of other currencies. The dollar index was down 0.48 percent, after slipping to five-week lows in the session.
"An easy money policy should ultimately result in helping the US economy to continue to recover and start a more accelerated growth pattern," Dominick Chirichella of New York’s Energy Management Institute wrote in a note.
But other analysts warned that the last round of quantitative easing was matched by a surge in oil prices, which could impinge on demand as the euro zone continues to struggle.
Brent prices surged by around 30 percent between November 3 2010 and June 30 2011, during the second round of quantitative easing by the Fed, or QE2.
"On the one side, you can argue that QE can bring additional liquidity and support to the market, but (oil) at those price levels would result in demand destruction," Petromatrix’s Olivier Jakob said.
Greece remained in focus as negotiations on a debt swap deal between private creditors and officials continue ahead of a March deadline when Athens faces major bond redemptions.
"In the very short term this is the main event evolving in Europe that could have an impact on global risk asset markets," Chirichella said. "For now there is still a bit more optimism that a negotiated solution will be reached rather than a chaotic default process."
Supply in the balance
Market sentiment remained concerned by fears of supply disruption amid growing tensions between the West and Iran over the Islamic Republic’s nuclear program. The United States has toughened sanctions, while Europe has agreed to ban oil imports from Iran.
"The passage of EU sanctions against Iranian crude oil leaves the displaced flows to find a market in Asia before the sanctions take effect in July," analysts at Barclays Capital said in a report. "The mathematics of the potential trades seems to be very delicately balanced, leaving a possibility that not all the displaced crude will find a market easily."
Despite the threat of disruption, other analysts argue that global oil supply is healthy, with extra crude from Saudi Arabia, Iraq and Libya more than likely to make up for any lost Iranian oil.
"The oil market should be very well supplied this summer – even better than now," said Samuel Ciszuk, Middle East and North African analyst at consultancy KBC Energy Economics.
"Volumes from Iraq should be up significantly, Libya is doing very well and Saudi Arabia will increase production to compensate for some of the lost Iranian barrels."
