According to the International Energy Agency, 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.

The IEA said in its monthly oil market that crude’s price gains since the Fed policy was announced November 3 are the result of a transient rise in demand. Market fundamentals are unlikely to support a second increase toward the record USD 147.27 per barrel reached in 2008.

The Agency said that 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 fundamental may be exerting a constraining influence.

The Fed plans to buy an additional USD 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% since the policy was announced and rose to a two year high of USD 88.63 per barrel.

(Sourced from Bloomberg)