Oil climbs above $52 in Asia on stock market rally

[March 23, 2009]  KUALA LUMPUR, Malaysia (AP) -- Oil prices rose above $52 a barrel Monday in Asia, boosted by stronger Asian stock markets amid plans by the U.S. government to buy bad assets from banks to contain the financial crisis.

Benchmark crude for May delivery rose 52 cents to $52.59 a barrel by midday in electronic trading on the New York Mercantile Exchange. The contract edged up 3 cents on Friday to settle at $52.07, the first time crude ended the week above $50 since last year.

Dealers said the rally, which was given an extra boost by the U.S. Federal Reserve's decision to buy $1.25 trillion of government bonds and mortgage-backed securities, continued Monday as Asian equity markets rallied in anticipation of more good news.

But some cautioned the advance may not be sustainable as global oil demand remains weak.

"Oil pricing is driven by the financial rally. It's questionable whether $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.

To get at the heart of the nation's financial crisis, U.S. Treasury Secretary Timothy Geithner is set later Monday to detail plans to remove a mountain of toxic assets weighing on banks' balance sheet.

The plan aims to purchase as much as $1 trillion in troubled assets, utilizing the resources of the $700 billion bank bailout fund, the Federal Reserve and the Federal Deposit Insurance Corp.

It will seek to entice private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to finance the purchases and also sharing risks if the assets fall further in value.

If the initiative is well received, Shum said it may lend a temporary momentum to the oil rally. But he warned prices could fall back to below $50 as a global economic recovery isn't likely to occur until late in the year.

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

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

Sharp output cuts in recent months from OPEC nations and a worsening outlook for non-OPEC production will reduce supply in the second half this year, while global demand has stabilized, it said in a recent report. Sharp interest rate cuts and expansive fiscal policies globally will also boost energy demand or prices, it added.

It expects a shallow oil demand recovery in 2010, and sees prices at $62 a barrel next year.

In other Nymex trading, gasoline for April delivery rose 1.15 cents to $1.4685 a gallon, while heating oil added 1.1 cent to $1.3950 a gallon. Natural gas for April delivery edged up 1.8 cents at $4.245 per 1,000 cubic feet.

In London, Brent prices rose 60 cents to $51.82 a barrel on the ICE Futures exchange.

[Associated Press; By EILEEN NG]

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