VIENNA — Oil prices levelled off Friday after the effects of OPEC production cuts and a massive U.S. government buying spree led to a weeklong rally.
Benchmark crude for April delivery fell 55 cents to settle at $51.06 (U.S.) a barrel in light trading on the New York Mercantile Exchange. The April contract expires Friday and traders shifted their attention to the May contract, which rose three cents to settle at $52.07.
It was the first time crude has ended the week above $50 since last year.
“It really seems like the market is taking a breather after a wild week,” said Mike Zarembski, senior commodity analyst at brokerage OptionsXpress Inc.
Oil prices rose 11 per cent over the week. Prices spiked after the U.S. Federal Reserve announced plans Wednesday to buy $1.25 trillion of U.S. government bonds and mortgage-backed securities. Investors pumped money into commodities like oil as the U.S. dollar went into a tailspin.
Also this week, for the first time in months, supply concerns came to the forefront as researchers that monitor seagoing oil tankers said traffic dropped considerably.
Investors since late last summer have brushed off OPEC's plan to slash crude production, focusing instead on the global recession and a massive surplus of crude in U.S. inventories.
But six months after OPEC members agreed to tighten their spigots, analysts said the group has started to balance a plunge in global consumption with supply. Most analysts believe the Organization of the Petroleum Exporting Countries has cut about 80 per cent of the 4.2 million barrels of crude per day that it promised last year.
OPEC ministers said Sunday they would push even harder to make all member states comply with quotas.
Crude prices rose again on Friday as traders learned that two U.S. Navy vessels collided in the Strait of Hormuz between Oman and Iran, a crucial passageway for supertankers.
The collision would not block the waterway, but any incident in that area can spook markets.
The U.S. Navy's 5th Fleet said the collision occurred at 5 p.m. ET on Thursday between the USS Hartford, a submarine, and the USS New Orleans, an amphibious assault ship.
Fifteen soldiers aboard the Hartford were slightly injured but able to return to duty.
“Whenever we see something going on in that area, we always see an uptick in prices,” said Addison Armstrong, director of market research at Tradition Energy. “It's a very narrow area. It's choked with ships. And it's in a volatile region.”
About 17 million barrels of oil moved through the narrow straight in the first half of last year, roughly 40 per cent of the crude that's traded at sea, according to the Energy Information Administration. At its narrowest, the strait measures 34-kilometres across and forms a bottleneck for ships trying to get in and out of the Persian Gulf.
Also on Friday, analysts with Morgan Stanley said a sharp drop-off in deep water drilling projects could cut crude supplies by another 2.4 million barrels a day in 2011.
Retail gas prices in the United States climbed for the third straight day. Prices at the pump rose overnight to a new national average of $1.942 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Gas is 1.5 cents a gallon cheaper than a month ago and $1.33 a gallon cheaper than it was last year.
In Canada, the price at the pump averaged 88.7 cents Canadian per litre, according to price-watching website GasBuddy.com.
In other Nymex trading, gasoline for April delivery rose almost 2 cents to settle at $1.457 a gallon. Heating oil also rose 2.7 cents to settle at 1.3834 a gallon. Natural gas for April delivery rose 5.3 cents to settle at $4.227 per 1,000 cubic feet.
In London, Brent prices rose 55 cents to settle at $51.22 on the ICE Futures exchange.
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