Oil tumbles as dollar strengthens on Fed move

SINGAPORE: Oil tumbled in Asian trade Thursday on a stronger dollar as investors flocked to the safe-haven currency after the US central bank warned of significant downside risks to the economy.

A strong greenback makes dollar-priced crude more expensive to holders of other currencies, softening demand.

New York's main contract, West Texas Intermediate for November delivery, was down $1.43 to $84.49 a barrel in afternoon Asian trade, and Brent North Sea crude for November dropped $1.72 to 108.64.

The US Federal Reserve, after a two-day meeting Wednesday, unveiled a $400 billion dollar stimulus plan reduce long-term interest rates but investors chose to focus on its warning about the outlook for the world's biggest economy and oil consumer.

In announcing the new measures, the Fed painted a grim picture of the economy, strapped with slow growth, high unemployment and a depressed housing market.

"There are significant downside risks to the economic outlook, including strains in global financial markets," the central bank's Federal Open Market Committee warned.

The Fed stimulus plan also hit stock markets. US shares dived and the dollar surged -- an indication investors were once again flocking to the currency considered a safe bet in times of crisis.

Chen Xin Yi, a commodities analyst at Barclays Capital in Singapore, said the Fed's statement about significant downside risks "contributed to some risk aversion" in the market.

Phillip Futures in Singapore said that "after the Fed's announcement, the rise in the dollar prompted investors to sell risk assets such as crude oil and stocks."

"The big question is whether this latest action (by the Fed) will accomplish anything. Frankly, we doubt it," said Paul Ashworth, the chief US economist at research house Capital Economics.

Investors were also digesting a series of downgrades by Moody's on three top US banks -- Bank of America, Wells Fargo and Citigroup -- saying it saw the US government less willing than before to rescue them if they become unstable.

Copyright AFP (Agence France-Presse), 2011