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Oil hits high for 2009 as dollar plunges Despite increasing jobless claims and fewer highway miles, oil rises on Fed decision to buy bonds, lend to small businesses Chris Kahn The Associated Press
Oil prices hit new highs for the year on March 19 after a decision by the Federal Reserve to spend billions snapping up U.S. bonds sent the dollar tumbling.
Oil is priced in dollars and when the U.S. currency weakens, it essentially makes crude cheaper.
Benchmark crude for April delivery surged $3.12 to $51.26 a barrel in light trading on the New York Mercantile Exchange. Oil prices hit $52.25 earlier in the day, a price last seen on Dec. 1. Crude prices have touched new highs every day since OPEC ministers met in Vienna on March 15.
With the April contract set to expire on March 20, most of the trading had shifted to the contract for May delivery, where prices jumped $2.85 to $51.75 a barrel.
Alaska North Slope crude oil delivered to the West Coast closed at $47.14 a barrel on March 18.
Analysts said investors flocked to crude stocks after the Federal Reserve announced on March 18 it would buy long-term government bonds, a measure that’s expected to jolt the economy with lower rates on mortgages and other consumer debt.
Price jump follows fed news The Fed also said a $1 trillion program to jump-start consumer and small business lending could be expanded to include other financial assets.
“You’re seeing wild swings in a lot of commodities today,” said Phil Flynn, analyst at Alaron Trading Corp. “The government is basically printing money to buy back all this paper, and it devalues the dollar.”
The U.S. dollar dropped against other major currencies almost immediately, at one point falling to levels not seen since January. On March 19, the euro traded at $1.3650, up close to 2 cents.
Flynn said the rise in oil shouldn’t be taken as a sign that the economy in on the mend. The Fed is using all of its powers to prop up American businesses, “and this is one of their last shots,” Flynn said. “If this doesn’t work, they’re out of bullets.”
OPEC cuts finally take hold While demand continues to fall, production cuts by the Organization of the Petroleum Exporting Countries may finally be taking hold, according to tanker tracker Oil Movements. Member states agreed last year to squeeze global oil supplies, trimming 4.2 million barrels per day in production.
Crude exports from OPEC countries have been shrinking during the past few months. They’re expected to drop 770,000 barrels a day in the four weeks leading to April 4, according to an Oil Movements report.
While the recession kept oil near five-year lows, tighter supplies in the spring and summer should buoy crude prices in the next three months, the report said.
Prices rises despite economy Oil prices spiked on March 19 despite a government report that said jobless claims set a new record for the eighth straight week. The Labor Department said continuing claims for unemployment insurance jumped 185,000 to a seasonally adjusted 5.47 million, another record-high and more than the roughly 5.33 million that economists expected.
Initial claims dropped to a seasonally adjusted 646,000 from the previous week’s revised figure of 658,000, however. That was better than analysts’ expectations.
Job cuts are part of the reason for a severe drop-off in miles driven by Americans, a growing number whom no longer commute to work.
The Federal Highway Administration said on March 19 that motorists logged 7 billion fewer miles in January, 3.1 percent less than the same period in 2008.
The dour economic news did little to dissuade investors as prices topped $50.47 a barrel, the previous high for 2009.
Cameron Hanover analyst Peter Beutel said if crude sets a new high for the year at the close of trading, it means that OPEC production cuts, the federal stimulus package and other bullish factors “are working together to be more important at this moment than the recession and its impact on demand.”
Associated Press writers Ernest Scheyder in New York, George Jahn in Vienna, Austria and Alex Kennedy in Singapore contributed to this report.
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