MW: Oil rallies as Treasury's plans raise optimism
Crude-oil futures rallied about 3% Monday to above $53 a barrel, pacing strong gains in U.S. stock markets, as the Treasury's plans to relieve banks of toxic assets raised hopes of an economic recovery and increased energy demand.
Under the plan, the Treasury and private capital will provide equity financing, and the Federal Deposit Insurance Corp. will provide a guarantee for debt financing issued by the public-private investment funds to fund asset purchases.
Crude for May delivery rose $1.47, or 2.8%, to $53.54 a barrel on the New York Mercantile Exchange.
"The government's plans raise investment sentiment and optimism," said Phil Flynn, vice president at Alaron Trading. "People start thinking maybe the economy will recover."
The Treasury's program will use $75 billion to $100 billion in capital from the government's Troubled Asset Relief Program as well as capital from private investors.
"The goal of this program is to restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit," the Treasury said in a news release.
Stocks jumped on Wall Street as investors registered a favorable reaction to details of the program. Banks stocks in particular leaped.
'People start thinking maybe the economy will recover.'
— -- Phil Flynn, Alaron Trading
"The details of this plan may be key for the market's views on the dollar and on economic recovery, and so impacting price views of crude oil and other commodities," said Brenda Sullivan, analyst at Sucden Financial Research.
Last week, crude prices rallied 10%, boosted by a weaker dollar as the Federal Reserve's decision to purchase long-term securities pushed down the greenback.
"As long as the U.S. dollar shows persistent weakness, oil prices should still have more upward potential," said analysts at Commerzbank in a research note.
"We anticipate much higher oil prices toward the end of the year," they said. "However, without stabilization of demand in the major oil-consuming countries, it is hard to imagine a sustained turnaround towards a higher price level."
But some investors were worried that a stronger dollar may end oil's recent rally.
In the near term, "the rise in oil isn't based on demand but because it is getting an artificial lift from the Fed," said Alaron's Flynn.
The dollar was higher against its major rivals on Monday. See Currencies.
Also on the Nymex, April reformulated gasoline rose 2.9% to $1.4988 a gallon and April heating oil gained added 3.9% to $1.4371 a gallon. April natural-gas futures rose 2.1% to $4.315 per million British thermal units.
In corporate news, Suncor Energy said it will acquire Petro-Canada for about $15 billion of stock, combining two major Canadian energy providers with particular strength in oil sands.
