NEW YORK (AP) – 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.”
Benchmark crude for April delivery surged $3.47, or seven 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 touched new highs every day in intraday trading since OPEC ministers met in Vienna on Sunday.
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.
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. Oil is priced in dollars and when the US currency weakens, it essentially makes crude cheaper.
“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 US dollar dropped against other major currencies almost immediately, at one point falling to levels not seen since January. Thursday, 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.”
While demand continues to fall, production cuts by the Organization of 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.
On Thursday, oil prices spiked 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.