Oil fell from a near 4-month high to around $51 this morning, paring the previous session's 7 per cent gain, on doubts over the effectiveness of the US Federal Reserve's $1 trillion package to revive the economy.
Oil jumped last night to $51.61 a barrel, the highest settlement since November 28th, after the Fed's plan to fight recession and a weak dollar boosted the appeal of commodities to investors.
US light crude for April delivery, which expires today, fell 49 cents or 0.9 per cent to $51.12 a barrel by 6.06am, while the May delivery contract fell 29 cents to $51.75.
London Brent crude fell 29 cents to $51.75.
“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.”
Investors are worried over the weakening dollar and prospects of surging inflation once the economy starts recovering, analysts say.
Oil prices have risen 10 per cent since start of the week, largely boosted by the weak dollar and hopes the Fed's move to buy long-dated treasuries, its first large-scale purchase of government debt since the early 1960s, would help lift the battered US economy out of a 14-month recession.
But with crude stockpiles swelling in the United States and immediate energy demand still weak, some analysts cautioned that it may be difficult for oil prices to sustain its recent rally.
“Unless the US dollar continues to weaken, oil may have to retreat below $50 a barrel,” Hassall said.
The US dollar headed for its biggest weekly fall in 24 years today, sliding 5.1 per cent against a basket of major currencies, as investors feared the Federal Reserve's plans to buy government debt would cheapen the world's reserve currency.
Commodity prices rallied this week, with the Reuters-Jefferies CRB index, a global commodities benchmark, touching a five-week high yesterday, as the softer dollar made them cheaper for overseas buyers, while others looked for a hedge against potential inflation.
Reuters