Oil prices have continued to soften into Friday afternoon in a continuation of a trend started yesterday. Trading has been choppy this afternoon, but the general trend is lower in line with a US Dollar that has found some strength. US Dollar strength has come on news that the US Federal reserve would like to target a 2% inflation rate in the US economy. With inflation currently standing at 1% investors see this as a cue from Ben Bernanke, the Federal Reserve Chairman, to pursue further monetary expansion in the form of quantitative easing. Such policy usually weakens currencies, but the policy does boost perceptions on the US economy and in turn future demand for dollars. Brent crude lost ground early this week, but then rallied in midweek on renewed US dollar (USD) weakness and improved sentiment towards commodities generally. However, crude oil continues to underperform other commodities with tighter supply conditions, such as copper and wheat. Oil prices softened slightly on Thursday, despite price risks, in general, continuing to build towards the upside in the face of continued positive demand surprises and a fading away in the m/m momentum of non-OPEC supply. Front-month WTI fell by 32 cents to $82.69/bbl, while the equivalent Brent contract shed 11 cents to $84.53/bbl, as the prompt Brent spread swung into mild backwardation on the day of expiry. Looking forward analysts don't see much change for the fortunes of oil prices. Standard Chartered have said that while China imported record volumes of crude in September and the International Energy Agency (IEA) raised its forecast for 2010 demand on a better-than-expected performance in Q3, still-high levels of global inventories indicate that the market is more than adequately supplied for now. However, Standard Chartered expect the market to tighten seasonally as Q4 progresses.

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