--Crude surges above $100 a barrel in wake of Fed move
--Dollar sinks to four-month low
--Open-ended nature of Fed program surprises market
participants
By Dan Strumpf
NEW YORK--Oil futures surged above $100 a barrel Friday,
continuing their rally for a second session after the U.S. Federal
Reserve announced a third round of bond buying aimed at juicing the
flagging U.S. economy.
The dollar continued to sink against major currencies, boosting
the price of dollar-denominated crude. Although many traders had
expected the Fed to act on Thursday, the open-ended nature of the
stimulus program took many market participants by surprise and
prompted additional buying, said Phil Flynn, analyst at Price
Futures Group in Chicago.
"The Fed has always given an exit strategy on this policy," he
said. "Now there is no exit strategy."
Light, sweet crude for October delivery recently traded $1.02,
or 1%, higher at $99.32 a barrel on the New York Mercantile
Exchange. The contract popped above $100 for the first time since
May in early morning trading.
Brent crude on the ICE Futures Europe exchange rose $1.17, or
1%, to $117.05 a barrel, also breaching a four-month high.
The Federal Reserve on Thursday announced a plan to buy $40
billion in mortgage-backed securities every month and said it would
keep buying until the job market improves. The measure was seen as
an unusually strong commitment by the central bank, whose previous
bond-buying initiatives came with a specific end date.
The announcement sent the dollar sliding against other major
currencies. A weaker dollar tends to boost the price of oil because
the crude trade is denominated in dollars, making the commodity
more attractive to holders of other currencies and to investors
seeking returns.
"As the Fed embarks on a third round of quantitative easing,
risky assets are rallying hard," analysts at Barclays noted in a
report to clients.
The ICE U.S. Dollar Index, which tracks the dollar against a
basket of currencies, recently fell 0.5% to 78.878, falling earlier
to its lowest level since May.
Additional stimulus of some kind by the Fed was widely expected,
particularly after last week's disappointing U.S. jobs report. Oil
prices have risen 2% in September, largely on expectations that the
Fed would act.
In spite of high oil prices, demand for crude in the U.S.
remains at its lowest levels in years as high unemployment keeps
motorists off the road. The U.S. is the world's biggest consumer of
crude.
Geopolitical tensions have also kept crude prices elevated.
Sanctions on Iran have kept the country's oil off the market and
raised worries of a possible military conflict. That in turn could
spur a blockade of the Strait of Hormuz, a key chokepoint where 20%
of the world's crude passes.
Front-month October reformulated gasoline blendstock, or RBOB,
recently rose 6.74 cents, or 2.3%, to $3.0296 a gallon. October
heating oil gained 3.51 cents, or 1.1%, to $3.2464 a gallon.
Write to Dan Strumpf at dan.strumpf@dowjones.com