MW: Oil futures rally 6% as Fed's plans raise optimism
Oil futures rallied 6% Thursday to above $50 for the first time in more than two months after the Federal Reserve took extraordinary steps to lower borrowing costs, raising hopes for an economic recovery and for higher oil demand.
The Fed's plan also raised inflation worries in the long term, leading the dollar slide and pushing up dollar-denominated commodities prices.
Crude oil for April delivery rose $2.86, or 6%, to $51 a barrel on the New York Mercantile Exchange. Earlier, the April contract, which expires on Friday, hit an intraday high of $52.25 a barrel. Oil hasn't traded above $50 since early January.
Crude oil for May delivery, which drew higher trading volume, gained $2.82, or 5.8%, to $51.72 a barrel.
"Crude prices continued to rise, following renewed optimism among market participants amid yesterday's announcement from the U.S. Federal Reserve," wrote Nimit Khamar, an analyst at Sucden Financial Research.
The Fed surprised the markets Wednesday and said that it will buy up to $300 billion in longer-term Treasury securities over the next six months.
The central bank will also increase the size of its balance sheet by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year.
Also helping crude move higher, the dollar extended its weakness against major counterparts Thursday, a day after plunging sharply in the wake of the Fed's announcement. See Currencies.
"Oil, as well as other strategic commodities, is rallying sharply as dollar denominated assets become cheaper for holders of other currencies," wrote John Kilduff, an analyst at MF Globa.
The dollar index , a measure of the greenback against a basket of major currencies, fell 1.2% to 83.241.
Weakness in the greenback boosted dollar-denominated commodities such as oil and gold. Gold futures soared $59.90, or 6.7%, to $948.90 an ounce.
Traders got some more grim news about the U.S. labor market Thursday.
The number of people collecting state unemployment benefits jumped by 185,000 to a record seasonally-adjusted 5.47 million in the week ending March 7, while new claims dipped by 12,000 to 646,000 in the week ending March 14, the Labor Department reported Thursday.
The four-week average of new claims rose by 3,750 to 654,750, the highest level in 26 years.
Also on the Nymex, April-reformulated gasoline rose 5.34 cents, or 3.9%, to $1.4194 a gallon and April heating oil gained 8.15 cents, or 6.5%, to $1.3455 a gallon.
April natural-gas futures rose 3.6 cents, or 1%, to $3.72 per million British thermal units.
The U.S. Energy Information Administration will report data on natural gas supplies at 10:30 a.m. on Thursday. Analysts expect a reduction of between 22 billion cubic feet and 27 billion cubic feet in natural-gas storage inventories for the week ended March 13, according to a Platts survey.
