LONDON: Oil jumped more than 5 percent on Thursday to above $50 a barrel after the US Federal Reserve announced a new plan to fight recession and a weak dollar boosted the appeal of commodities to investors.
The Fed announced on Wednesday it would pump another $1 trillion into the US economy by buying long-term government debt for the first time since the 1960s and by expanding purchases of mortgage bonds.
“We have for the time being a return to risk appetite in the oil market and it’s based on the Fed’s announcement yesterday, said analyst Mike Wittner of Societe Generale. “That’s having a positive impact on sentiment.
US crude for April was up $2.60 a barrel at $50.74 by 1355 GMT, having earlier traded as high as $52.25, the highest since Dec. 1, 2008. London Brent for May delivery rose $2.56 to $50.22.
Other commodities also advanced as the Fed’s plan aroused expectations that demand may increase. Copper jumped more than 5 percent to a four-month high. European stocks rose and Wall Street made early gains.
The $50-mark has been the top of oil’s trading range so far in 2009. A close above that level is needed to increase the prospect of a further rally, said analysts who use past price moves to predict future direction.
Oil eased from intra-day highs after US jobs data showing a record high in the number drawing state unemployment benefits highlighted the extent of the downturn in the world’s top oil consumer.
The International Monetary Fund said the world economy will contract in 2009 for the first time since World War Two by between 0.5 percent and 1.0 percent.
Weaker dollar
Oil is unlikely to hold above $50 for very long, despite the Fed’s move, Wittner said.
“After this initial optimism fades, I don’t think we’ll stay there as the focus will shift to whether these measures will actually work.
“The simple fact is we’re not going to know the answer to that for some months.
The dollar dropped against a basket of currencies on Thursday, after posting its biggest daily fall since 1985. A weak dollar can boost investor demand for oil and other commodities priced in the U.S. currency.
Besides technical resistance, falling demand could also limit oil’s gains in the near term.
On Wednesday, oil fell after data showed U.S. crude inventories ballooned to the highest in nearly two years and the World Bank cut its 2009 forecast for China’s economic growth.
Slumping demand and rising inventories have helped drag oil down from a record high near $150 reached last summer as the economic crisis hit consumption across the globe.
Analysts say oil, which sank below $33 in December, has stabilized around $40 to $50 due to OPEC supply curbs of 4.2 million barrels per day, but the grim economic outlook is standing in the way of a further advance.
The Organization of the Petroleum Exporting Countries pledged to comply more strictly with its supply curbs at a meeting on Sunday. It meets again to set oil output policy on May 28.
Saudi Arabian Oil Minister Ali Al-Naimi, the group’s most influential voice, said on Wednesday he believed OPEC had managed to put a floor under the market.
“I think OPEC has succeeded in stabilizing prices, he said. “The next thing is to hope for a gradual improvement in prices over time. -Additional reporting by Fayen Wong
