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Fri 12 Nov 2010 02:25 PM

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IEA says oil price already reflects second US stimulus plan

The Fed plans to buy additional $600m of US bonds through June to stimulate US economy

IEA says oil price already reflects second US stimulus plan
DEMAND RISE: Crude’s price gains since the Fed policy was announced are the result of a “transient” rise in demand(Getty Images)

Oil prices are already reflecting the potential effect from the US Federal Reserve’s policy to buy government debt and help maintain the economic recovery, according to the International Energy Agency.

Crude’s price gains since the Fed policy was announced November 3 are the result of a “transient” rise in demand, the IEA said in its monthly oil market report today. Market fundamentals are unlikely to support a second increase toward the record $147.27 a barrel reached in 2008, the agency said.

The IEA, an adviser to energy consuming countries said: “Given that the supply outlook remains comfortable and that stocks are plentiful, the recent rise in oil prices may prove to be temporary.”

Prices “have remained broadly stable since QE2 was announced, suggesting that the move has been already fully priced in and that comfortable global fundamentals may be exerting a constraining influence.”

The Fed plans to buy an additional $600 million of US bonds through June to stimulate the US economy. The program, known as quantitative easing, could debase the dollar, increasing investor’s interest in commodities.

Oil prices have climbed as much as 4.6 percent since the policy was announced and rose to a two year high of $88.63 a barrel yesterday.

December futures were at $85.87 a barrel today, down 2.2 percent.

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OSAMO 9 years ago

Well, the latest positive rally in oil price is encouraging, the full blown benefit may never crystallised on the back of woeful performance of the democrats in the recent mid -term election.
It is left to be seen how the US politics will plays out factoring this emerging scenario.

It is a known fact that the first stimulus plan (inspite of its limitations) was this succesfull due to the overwhelming support of the two houses. With this advantage seemingly gone, it is left to be seen how power will play-out.All this interplay of power affects the US economy, its aggregate comsumption and by extension the global price of oil.