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Friday, February 19, 2010

Oil tumbles as Fed rate hike boosts dollar

Oil prices fell sharply to around $78 a barrel in Asian trade today after the US Federal Reserve's decision to raise its interest rate on emergency loans to banks boosted the dollar.

New York's main futures contract, light sweet crude for delivery in March, was down $1.03 to $78.03 a barrel.

Brent North Sea crude for April delivery eased 96 cents to $76.82 a barrel.

Analysts said the Federal Reserve's move to raise the discount rate, or the primary credit rate, to 0.75 per cent from 0.5 per cent surprised markets in its timing.

"People were not expecting it to occur so soon, but the Federal Reserve moved its discount rate and that boosted the dollar and applied pressure on the oil market," said Serene Lim a Singapore-based oil analyst with the ANZ bank.

The Fed said the increase reflected the easing of the financial crisis that resulted from a home-mortgage meltdown.

The action sent the dollar sharply higher against all of the major currencies and prompted oil prices to tumble from five-week highs of more than $79 a barrel reached yesterday due to rising US energy demand.

Oil is traded in US dollars and a stronger greenback makes the commodity more expensive to investors holding weaker currencies, dampening demand, which leads to lower prices.

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