Oil at $52, recoups losses after ship collision
Oil hovered above a four-month high on Friday at $52 a barrel, recouping earlier losses as the market sought a new base above $50 and after news of a ship collision in the key Strait of Hormuz shipping lane.
The market surged on Thursday to $51.61, its highest settlement since November 28, after the U.S. Federal Reserve announced a plan to buy long-term government debt and the dollar fell, boosting investor appetite for commodities.
The sentiment that the economy may improve and that the Fed's moves may be inflationary has crude trying to put in a base above $50 after breaking out of its recent range, said Gene McGillian, an analyst at Tradition Energy in Connecticut.
Traders took profits early on Friday, bringing down prices more than $1 at one point. Prices moved back up after news of a collision between two U.S. Navy ships in the Strait of Hormuz, through which around 40 percent of the world's oil is shipped.
There is no disruption to shipping traffic in the strait. Both ships are operating under their own power and have passed through the strait, a U.S. Navy spokesman told Reuters.
U.S. crude for April, which expires on Friday, rose 40 cents to $52.01 a barrel by 1423 GMT (10:23 a.m. EDT), while the May contract was up 49 cents at $52.53. London Brent crude rose 45 cents to $51.12.
Oil is up 10 percent this week, lifted by a weaker dollar and expectations the Fed's move, its first large-scale purchase of government debt since the 1960s, would propel the U.S. 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.
DEMAND CRUNCH
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.
Oil tanker shipping company Frontline said on Friday there are around 40 very large crude carriers storing oil offshore, each with a capacity of around 2 million barrels - a combined potential of one full day's worth of global oil supplies.
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.
Bank of America Securities-Merrill Lynch on Friday raised its 2009 oil price forecast to $52 a barrel from $50, but cut its 2010 outlook to $62 a barrel from $70, citing weak demand.
The International Monetary Fund forecast on Thursday the world economy would contract in 2009 for the first time since World War Two by between 0.5 percent and 1.0 percent.
(Additional reporting by Raissa Kosolowsky in Dubai and Robert Gibbons in New York, editing by Sue Thomas)
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