Further quantitative easing by the U.S. Federal Reserve could push oil prices to an average of $83 next year even if demand remains weak, analysts at Bank of America Merrill Lynch said on Friday.
The bank calculated in a Global Commodity Research note that oil prices would increase by 6 percent if the Fed were to expand the money supply by an additional $500 billion-$750 billion as early as the first quarter of 2011 in a second round of quantitative easing (QE).
Expansionary U.S. monetary policy tends to boost the prices of oil and other dollar-denominated commodities by increasing the number of greenbacks in circulation.
“Additional monetary easing in early 2011 could bring Brent crude oil prices LCOc1 up from an average of $78 a barrel this year to an average of $83 a barrel next year even if demand stays weak,” Bank of America Merrill Lynch said.
