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Oil trades around US$54 on stock market rally

OIL prices briefly topped US$54 a barrel yesterday, getting a boost from stock investors who seemed hopeful a new plan to resolve America's banking crisis would spur economic growth. Better-than-expected housing news helped too.

Benchmark crude for May delivery rose US$1.73 to settle at US$53.80 a barrel on the New York Mercantile Exchange, continuing its upward momentum. Prices climbed as high as US$54.05.

On Friday, oil ended the week above US$50 a barrel for the first time this year, and prices have risen more than 30 percent this month.

In London, Brent prices rose US$2.25 to settle at US$53.47 on the ICE Futures exchange.

"Generally, we've had moderately good economic news of late," said Michael Lynch, president of Strategic Energy & Economic Research. "That's giving people some optimism that maybe demand will be picking up. If the (new banking) plan is effective, so much the better."

The Obama administration's latest initiative to revive consumer and business lending, introduced yesterday by Treasury Secretary Timothy Geithner, seeks to combine government and private resources to purchase an initial half-trillion dollars of bad assets off the balance sheets of banks. Eventually, the plan could grow to US$1 trillion.

Also yesterday, the National Association of Realtors said sales of existing homes rose from January to February. But the median sales price plunged to US$165,400, down 15.5 percent from US$195,800 a year earlier. That was the second-largest drop on record.

In a major energy deal announced yesterday, Suncor Energy Inc. said it will acquire Petro-Canada for US$15.5 billion, uniting two of Canada's biggest oil companies. If the deal is approved, it would create the largest oil company in Canada with a market capitalization of about US$38 billion.

Wall Street reacted positively to the day's news, as the Dow Jones industrial average rose more than 4 percent in afternoon trading. Other leading U.S. market indicators also soared,

Stock market indexes closed mostly stronger in Asia and Europe.

The U.S. Federal Reserve said last week it will pump US$1.2 trillion into the economy to lower interest rates on mortgages, which could by extension prop up oil prices, analysts say. Such an influx weakens the dollar against the euro and the British pound and increases the allure of commodities like oil and gold.

"The dollar may be key for the trend change in energy," Phil Flynn, an analyst at Alaron Trading Corp., said in a report yesterday. "The energy complex turnaround has not been triggered by demand but by the central bank action."

Some, however, cautioned that the advance may not be sustainable as global oil demand remains weak.

"Oil pricing is driven by the financial rally. It's questionable whether US$50 is the new floor because the fundamental picture for oil has not changed. Demand remains weak in the near term and oil pricing may be vulnerable," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

Algeria's Energy Minister Chakib Khelil predicted Sunday that crude oil prices could hit US$60 per barrel by the end of the year.

Bank of America Securities-Merrill Lynch has also raised its forecast for crude prices to US$52 a barrel this year, from US$50 a barrel, on the back of a tighter-than-expected oil market balance.

In other Nymex trading, gasoline for April delivery rose 3.1 cents to settle at US$1.4881 a gallon, while heating oil added 8.73 cents to settle at US$1.4707 a gallon. Natural gas for April delivery rose 6.7 cents to settle at US$4.294 per 1,000 cubic feet.


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