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Oil higher on Fed and supply issues

Friday, September 14 07:20:54

Brent crude rose for the seventh straight session today, climbing towards $117 a barrel on hopes for stronger global demand for oil after the U.S. Federal Reserve launched an aggressive programme to stimulate the economy. Brent crude for November delivery, which took over as the front-month contract on Friday, climbed 62 cents to $116.50 a barrel after rising 94 cents in the previous session. Brent, which hit a four-month peak of $117.48 on Thursday, is on track to close the week up around 2 percent.

U.S. crude rose 87 cents to $99.18 a barrel after briefly hitting a four-month high of $99.35. It is set to close the week up 3 percent. "The Fed is looking to purchase $40 billion worth of mortgage-backed securities per month for an open ended period, so that suggests there is going to be ongoing stimulus into the economy for an indefinite time," said Natalie Rampono, a commodity strategist at ANZ.

"That is the key reason oil prices hit a four-month high." The Fed's decision to tie its third bond-buying programme directly to economic conditions was an unprecedented step that marked a big escalation in its efforts to drive down U.S. unemployment. The U.S. dollar on Friday fell to a four-month low against the euro due to the Fed action. Losses in the dollar can support dollar-denominated commodities such as oil by making them cheaper to consumers using other currencies. Oil was also boosted by escalating anti-U.S. protests over a film demonstrators consider blasphemous to Islam.

Protesters attacked the U.S. embassies in Yemen and Egypt on Thursday, while the United States sent warships towards Libya, where the U.S. ambassador was killed in related violence this week. Demonstrations have also taken place in Kuwait, Iran, Bangladesh, Tunisia, Morocco and Sudan. "The Middle East premium is starting to be thrown into the oil price a little bit, adding about $5 to the price," said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm.

"A lot of the dissident parties will use the film as a means to promote more unrest. As a result of that, I see it continuing for a while." Central bank action, geopolitical risks and a weaker dollar have offset pressure from rising U.S. crude stockpiles. ( C) Reuters