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Oil prices reach new high for 2009 as dollar falls

(Agencies)
Updated: 2009-03-20 08:52

NEW YORK -- A weakened dollar and evidence that OPEC has significantly slowed production sent oil prices soaring to new highs for the year Thursday.

"I think we'll see higher oil prices for a while," said Michael Lynch, president of Strategic Energy & Economic Research. "There's an expectation that the market has bottomed out."

In this Feb. 17, 2009 file photo, gas attendant Scott Mathews pumps gas at DiBacco's Service Center in Beverly, Mass. [Agencies]

Benchmark crude for April delivery surged $3.47, or 7 percent, to settle at $51.61 a barrel 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 increased 11.6 percent since OPEC ministers met in Vienna on Sunday. The group said it would not cut production again immediately, but there is growing consensus that the millions of barrels taken off the market already each day are starting to balance a supply and demand picture that has been skewed for months.

Related readings:  Oil dips 4.5% on OPEC decision  Russia says it is cutting oil output  OPEC keeps output steady to help heal sick economy  Oil above $48 as investors eye Gaza conflict, OPEC

With the April contract set to expire Friday, most of the trading had shifted to the contract for May delivery, where prices jumped $3.14 to settle at $52.04 a barrel.

Gas prices increased 1.3 cents a gallon overnight to a new national average of $1.933 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Pump prices are 2.7 cents a gallon cheaper than a month ago and $1.346 a gallon cheaper than last year.

Analysts rushed to buy crude after the Federal Reserve announced late Wednesday 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.

The Fed also said a $1 trillion program to jump-start consumer and small business lending could be expanded to include other financial assets.

The announcements sent the dollar into a tailspin. The US dollar dropped against other major currencies almost immediately, at one point falling to levels not seen since January. The dollar has fallen about 5 percent against the euro over the past couple days.

Because oil is bought and sold in dollars, a weak US currency makes crude cheaper globally.

"The government is basically printing money to buy back all this paper, and it devalues the dollar," said Phil Flynn, analyst at Alaron Trading Corp.

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."

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