Thursday, November 1, 2007

Oil jumps $4

With the news of the interest rate cut by the US Federal Reserves (Fed), oil prices has now gone past the $94 per barrel. Fed cut interest rates by quarter-point to encourage lending and to ease the credit market.

The cut has led to a dive in the greenback, and major currencies around the world has seen a rise - in record high numbers - against the US dollar. This, couple with a decline in crude stocks has pushed oil prices to its current level.

As the KLSE opens this morning, the composite index is currently up by more than nine points. Leading the rise in share prices are plantation stocks such as the Kuala Lumpur Kepong (KLK), IOI Corp and Asiatic. Bursa is also doing well, but it seem that there will be much profit-taking today as investors try to cash in on gains from the past few days.

Personally, I have sold off most of my shares yesterday in view that there is a slim chance that Fed might not cut interest rates. But I'm back to buying today and hopefully the stock market will continue its bullish run for a few more days.

Some excerpts from around the news:

BBC:
US light crude ended the trading session up $4.15 to $94.53 a barrel, while London Brent traded at $90.63 a barrel, up $3.19 [...]

An array of factors have been driving oil prices higher. Oil prices have risen as the sliding greenback makes oil, which is priced dollars, cheaper to buy outside the US.

The dollar hit its weakest levels against the pound since 1981 on Wednesday. At the same time, oil investors have been casting a nervous eye on Turkey's threats to carry out a major military incursion into northern Iraq to attack Kurdish rebels [...]
CNN:

An interest rate cut boosts oil prices because it is meant to spur economic activity, which would drive up demand for oil.

A rate cut also pushes down the dollar, in which oil is priced. A falling dollar makes oil cheaper for foreign consumers and means oil producing countries have less incentive to raise production, both of which are bullish for oil prices [...]


Oil prices got a boost in premarket trade Wednesday after a report said the U.S. economy grew by a robust 3.9 percent rate in the third quarter, which was more than expected.

Oil prices sold off by more than $3 a barrel Tuesday after a report from influential trading house Goldman Sachs urged investors to sell oil now in order to lock in profits.

But crude is still near all-time highs, even adjusted for inflation. The last time oil was this high was the early 1980s, when it rose to $93 to $101 a barrel, depending on the inflation calculation used and the oil contract cited [...]
AFP:
In an accompanying statement to its second rate cut in as many months, the Federal Open Market Committee said that although financial market turmoil linked to a US housing downturn had eased in part, "the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.

"Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time."

The Fed slashed its federal funds rate by a half point to 4.75 percent on September 18 to ease a credit crunch tied to the housing slump.

Kathy Lien, chief strategist of Forex Capital Markets, said the latest Fed move was "giving the financial markets exactly what they wanted and nothing more." [...]
Telegraph UK:
The statement accompanying the decision was couched in far less reassuring tones than those that came with its emergency cut in September. It said the Fed remains concerned "the pace of economic expansion will likely slow in the near-term", adding that growth risks are to the "downside".
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However, it also voiced concern about the risks inflation poses to growth.

Economist James Knightley of ING said: "It seems as though the Fed is hinting that it doesn't see the need for a series of rate cuts as yet.

, The Dow Jones fell initially on the news but ended the day up 138 points at 13,930 [...]

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