Oil prices down as US cuts bond buying

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Oil prices eased in Asian trade Thursday after the US Federal Reserve said it would next month start to scale back its bond-buying programme as the economy shows signs of strengthening.

New York’s main contract, West Texas Intermediate (WTI) for January delivery, was down 14 cents at $97.66 in mid-morning trade while Brent North Sea crude for February eased 24 cents to $109.39.

The Federal Reserve announced it would cut its stimulus by $10 billion to $75 billion a month from January, indicating it is confident that economic conditions are improving.

Oil prices will “remain in narrow range till there is clear indication about the impact of Fed tapering on the emerging markets”, said Sanjeev Gupta, head of the Asia-Pacific oil and gas practice at consultancy firm EY.

The onset of tapering is likely to send the greenback higher, making dollar-priced oil more expensive to people using other currencies.

The greenback bought 103.88 in mid-morning Asian trade Thursday, slightly down from 104.20 yen late in New York but well up from the levels below 103 yen in Tokyo earlier Wednesday.

“Crude oil investors may expect the effect of declining overseas demand for crude oil to be counter balanced with stronger US domestic demand for the commodity,” Singapore-based Phillip Futures said in a commentary.The dollar edged down against the yen Thursday after hitting five-year highs in New York in response to the US Federal Reserve’s decision to cut back its stimulus programme next month, citing a pick-up in the economy.

Emerging market currencies fell having previously enjoyed healthy rallies on the back of the stimulus as traders took advantage of Fed’s cheap rates to seek out better returns.

In early afternoon trade the greenback eased to 104.00 yen in Tokyo from 104.20 yen late in New York, where it peaked at 104.36 yen — its highest since early October 2008 — but still well up from levels just below 103 yen in Tokyo Wednesday.

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The US unit was a tad higher against the euro. The single currency bought $1.3656 Thursday, against $1.3680 in New York, and much stronger than the $1.3770 mark in Tokyo Wednesday. The euro was also at 142.51 yen compared with 142.56 yen.

The Australian dollar fell to 88.21 US cents at one stage Thursday — its lowest level against the greenback since August 2010 — and in the late morning it edged up slightly to 88.27 cents.

At the end of a closely watched two-day meeting the Fed on Wednesday said it would reduce its bond-buying by $10 billion next month to $75 billion, citing a string of upbeat data indicating the world’s number one economy is strengthening.

It added that it would likely take “further measured steps at future meetings” if the economy continues to improve while keeping interest rates a record lows “well past the time” the unemployment rate declines below 6.5 percent — its previous cut-off point before tightening monetary policy.

The news sent the greenback surging in New York as the prospect of fewer dollars sloshing around the financial system boosted demand.

Despite the slight dip Thursday, analysts said said the dollar’s ascent may not be finished.

“The dollar could rise above 105 yen (in the) near-term” as investors become more confident of buying higher-risk assets, Yoshihiro Okumura, general manager for research at Chibagin Asset Management, told Dow Jones Newswires.

Investors were heartened by the US central bank’s assessment that recent upbeat data was “consistent with growing underlying strength in the broader economy”.

Highlighting that trend, data Wednesday showed sales of new US homes soared in October in the biggest monthly increase for 33 years.

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