With concern rising that the U.S. bank bailout will spark a wave of inflation, money is flowing into hard assets like oil. And almost all longtime traders will say it is only a matter of time before crude rebounds sharply. But projections for when that might happen vary widely.
Benchmark crude for June delivery jumped $1.63 to $51.25 a barrel on the New York Mercantile Exchange. In London, Brent prices rose $1.36 to $51.47 a barrel on the ICE Futures exchange.
Anyone buying crude in this market must usually have the funds and the facilities to store it. With inventories nearing levels last seen in the early 1990s, that usually means storage rates go up and oil prices go down. Crude prices, however, appear to be defying the norm.
"It's surprised a lot of people that oil is hanging around $50 and not $40" a barrel, said Andrew Lebow, senior vice president and broker at MF Global.
Trader and analyst Stephen Schork suggested there was little reason for even small upward price movements, considering the sorry state of the world's economy. The government reported this week that the U.S. petroleum appetite is the lowest in a decade and oil inventories are now bloated with the biggest surplus in nearly 19 years.
"We do not have a thoughtful explanation as to why crude oil moved higher," Schork said in his Schork Report, "other than, there were more buyers than sellers."
Natural gas futures, some say, give a better idea of what is happening in the economy and a rare break for consumers.
Natural gas prices fell again after dropping Thursday to the lowest price in more than six years. On Friday, natural gas for May delivery slipped 5.4 cents to $3.355 per 1,000 cubic feet.
Natural gas, which is a major power source for electrical utilities, has been building up in storage at levels well above seasonal averages as manufacturers cut back on production. The Energy Information Administration reported Thursday that natural gas in U.S. storage is now 36 percent greater than it was at this time last year.
On Friday, American Electric Power blamed tepid electricity demand for a 37 percent drop in its first quarter earnings. The Columbus-based power company said Friday that electricity use by industrial customers fell 15 percent.
Meanwhile, the three major U.S. automakers have slowed down production this year to match a plunge in demand.