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Oil prices mixed ahead of Fed policy meeting

27 january 2014, 12:49
©Reuters/Carlos Garcia Rawlins
©Reuters/Carlos Garcia Rawlins
Oil prices were mixed in Asian trade Monday as dealers focused on the US Federal Reserve's policy meeting this week in anticipation of further stimulus pullback, AFP reports.

New York's main contract, West Texas Intermediate (WTI) for March delivery, was up seven cents at $96.71 in mid-morning trade while Brent North Sea crude for March eased 34 cents at $107.54.

Tan Chee Tat, investment analyst at Singapore-based Phillip Futures, said investors were sitting on the sidelines amid "heightened anticipation that they (the Fed) will further engage in tapering".

Markets are waiting to see if the US central bank's Federal Open Market Committee (FOMC) will cut another $10 billion from monthly asset purchases when it meets on Tuesday and Wednesday.

In December, the FOMC said it would begin tapering the stimulus by $10 billion to $75 billion a month in January.

"If they were to taper, in the short term, it is likely to hurt demand for crude oil," Tan told AFP.

The so-called tapering of the Fed's asset purchases would likely boost the greenback, making dollar-priced oil more expensive for countries using other currencies, dampening demand.

But Tan said in the long-term, the move would signal "better prospects for crude oil" as it indicated the Fed's confidence in the US economy, which would translate into stronger demand.

He added that investors were also closely monitoring developments following the recent opening of the Southern leg of the controversial Keystone XL pipeline in the United States.

The $2.3 billion pipeline last week started carrying crude 487 miles (785 kilometres) from Cushing in Oklahoma to Gulf Coast refineries in the southern state of Texas.

The pipeline initial transportation rate of 300,000 barrels per day, about half of its maximum capacity, has so far disappointed investors.

"It is possible that they are transporting at lower capacity now due to the pressure exerted by environmental activists to prevent oil spills," Tan said.

"They are still at the monitoring stage and I expect a gradual increase in transportation to full capacity."

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