By John M. Biers
NEW YORK--Oil prices were choppy Monday morning a day before testimony by U.S. Federal Reserve Chairman Ben Bernanke that could signal additional quantitative easing.
Front-month oil futures on the New York Mercantile Exchange was most recently down 6 cents to $87.04 after trading in the black earlier in the morning. Front-month Brent oil futures were up 62 cents to $103.02.
Markets have been buzzing in recent weeks with the prospect that the U.S. Federal Reserve may engage in another round of quantitative easing, whereby it buys bonds with an eye toward lowering long-term interest rates to stimulate the economy. Past rounds of quantitative easing have boosted oil prices, which are traded in dollars. A weaker dollar following quantitative easing attracts buyers to the oil market because the commodity becomes less costly to other currencies.
"We are maintaining a trading theme that some type of stimulus will be forthcoming within the U.S., possibly via the Fed Chairman's comments tomorrow and that such efforts could be accompanied by additional monetary easing from China and the Euro zone," said analyst Jim Ritterbusch in a note. "Such a concerted global effort would enhance oil's appeal as an asset class and encourage further speculative entry into the long side."
Analysts said China bears continued watching after Premier Wen Jiabao over the weekend warned that economic weakness would persist for a while longer. As the world's second largest consumer of oil after the U.S., China has been a major driver of world oil markets in recent years.
Also over the weekend, the United Arab Emirates inaugurated a new pipeline that bypasses the Strait of Hormuz, a key waterway through which some one-fifth of the world's oil is shipped. The capacity of the line is a relatively modest 1.5 million barrels a day, but the line has been seen as an important strategic project following repeat threats by Iran to close the Strait of Hormuz.
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