Crude oil hits 16-month high as dollar sinks after Bernanke

Investing.com - Crude oil futures extended strong gains from the previous session to hit the highest level since March 2012 on Thursday, as the U.S. dollar tumbled following dovish comments from Federal Reserve Chairman Ben Bernanke.

On the New York Mercantile Exchange, light sweet crude futures for delivery in August traded at USD107.16 a barrel during European morning trade, up 0.6% on the day.

New York-traded oil prices rose by as much as 0.9% earlier in the day to hit a session high of USD107.45, the strongest level since March 27, 2012.

At an appearance in Boston late Wednesday, Fed Chief Bernanke said that “highly accommodative” monetary policy will be needed for the “foreseeable future,” citing low levels of inflation and the high unemployment rate.

The comments came after the minutes of the central bank’s June policy meeting showed that Fed policymakers remain divided over when to begin tapering its USD85 billion-a-month asset purchase program.

Around half of Fed policymakers believe the bank should start to scale back bond purchases by the end of the year, while others believe the labor market still remains too weak.

The U.S. dollar came under broad selling pressure as expectations grew the Federal Reserve would keep its loose monetary policy in place.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 1.2% to trade at 83.20, the lowest level since June 25.

Dollar-denominated oil futures contracts tend to rise when the dollar falls, as this makes oil cheaper for buyers in other currencies.

Oil prices received an additional boost after a report from the U.S. government on Wednesday showed that oil supplies fell significantly more-than-expected last week.

The U.S. Energy Information Administration said in its weekly report that U.S. crude oil inventories fell by 9.9 million barrels last week, compared to expectations for a decline of 3.3 million barrels.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for August delivery rose 0.35% to trade at USD108.89 a barrel, with the spread between the Brent and crude contracts standing at USD1.73 a barrel, the narrowest level since November 2010.

The gap between the contracts has been on a downward trend in recent weeks, amid an improving production outlook in the North Sea and indications of declining stockpiles at Cushing, Oklahoma, the delivery point for Nymex oil futures.