Oil pares gains after 7% surge, hovers around $51

Oil pares gains after 7% surge, hovers around $51
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First Published: Fri, Mar 20 2009. 10 46 AM IST
Updated: Fri, Mar 20 2009. 10 46 AM IST
Perth: Oil fell from a near 4-month high to around $51 on Friday, paring the previous session’s 7% gain, on doubts over the effectiveness of the US Federal Reserve’s $1 trillion package to revive the economy.
Oil jumped on Thursday to $51.61 a barrel, the highest settlement since 28 November, after the Fed’s plan to fight recession and a weak dollar boosted the appeal of commodities to investors.
US light crude for April delivery, which expires on Friday, fell 86 cents or 1.7% to $50.75 a barrel by 10:15am, while the May delivery contract fell 67 cents to $51.37.
London Brent crude fell 42 cents to $50.25.
“Oil has had a very good run in the past few sessions and some traders may see that it’s a good time to take profit after the surge last night,” said Toby Hassall, head of research at Commodities Warrants Australia.
“There could also be some uncertainties on the effectiveness of the Fed’s plan to revive the economy. It has no doubt given the markets a shot in the arm but there is still unease about the implications of the latest Fed action.”
Investors are worried over the weakening dollar and prospects of surging inflation once the economy starts recovering, analysts say.
Oil prices have risen 10% this week, largely boosted by the weak dollar and hopes the Fed’s move to buy long-dated treasuries, its first large-scale purchase of government debt since the early 1960s, would help lift the battered US economy out of a 14-month recession.
But with crude stockpiles swelling in the United States and immediate energy demand still weak, some analysts cautioned that it may be difficult for oil prices to sustain its recent rally.
The US dollar was heading for its biggest weekly fall in 24 years on Friday as investors feared the Federal Reserve’s plans to buy government debt would cheapen the world’s reserve currency.
Commodity prices rallied this week, with the Reuters-Jefferies CRB index, a global commodities benchmark, touching a five-week high Thursday, as the softer dollar made them cheaper for overseas buyers, while others looked for a hedge against potential inflation.
In a further sign that the US economy was still mired in a deep recession, US jobs data showed a record high in the number drawing state unemployment benefits.
The International Monetary Fund on Thursday forecast the world economy will contract in 2009 for the first time since World War Two by between 0.5% and 1.0%.
US bank JP Morgan upped its WTI crude oil price forecast for 2009 to an average of $49.38 a barrel, up some $5 from its previous estimate in December, the bank said in a monthly report.
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First Published: Fri, Mar 20 2009. 10 46 AM IST
More Topics: Markets | Oil | Crude | Price | Demand |