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Oil below $51 as weak demand back in focus

London, March 20, 2009

Oil fell from a four-month high on Friday to around $51 a barrel, paring the previous session's 7 percent rise, as the dollar edged higher and attention returned to weak demand and high inventories.

The market surged on Thursday to $51.61, the highest settlement since November 28, after the US Federal Reserve announced its plan to fight recession and the dollar fell, boosting the appeal of commodities to investors.

US crude for April, which expires on Friday, fell $1.10 to $50.51 a barrel by 1215 GMT, while the May contract was down 91 cents to $51.13. London Brent crude fell 77 cents to $49.90.

Oil is up 10 percent this week, lifted by a weaker dollar and expectation the Fed's move to buy long-dated treasuries, its first large-scale purchase of government debt since the 1960s, would propel the US economy out of a 14-month recession.

But with crude stockpiles swelling in the United States and energy demand still weak, some analysts cautioned it may be difficult for oil prices to sustain the recent rally.

"We may have further to fall. We've got a lot of excess capacity right now and until we increase the spot price, flatten the contango and bring in that floating storage, it's going to be tough," said Simon Wardell, oil analyst at Global Insight.

"This isn't like the 1980s. It's not a supply crunch, it's a demand crunch," he said. Other analysts said there were doubts about how effective the Fed's measures would be.

"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."    

The dollar edged higher on Friday, but was still on track for its biggest weekly drop in 24 years against a basket of currencies as investors feared the Federal Reserve's plans would hit the value of the currency.-Reuters




Tags: Oil | weak demand |

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