Passage of the $14 billion measure to aid carmakers helps boost sentiment about economy, but threatens weaker dollar.
By Kenneth Musante, CNNMoney.com staff writer
Oil prices jumped Thursday after the House passed a $14 billion stop-gap measure designed to keep the U.S. auto industry from immediate collapse.
U.S. crude for January delivery rose $4.46 to settle at $47.98 a barrel in New York. It rose to a high of $49 a barrel earlier in the session.
The House passed a bill that would provide $14 billion in loans to automakers General Motors (GM, Fortune 500) and Chrysler, and keep them out of bankruptcy until at least March. Ford Motor (F, Fortune 500), which is in better shape cash-wise than its counterparts, is not part of the $14 billion plan.
The measure, which still faces a vote in the Senate, could prevent a large blow to the economy of the world’s largest oil consumer.
An auto bailout has been largely priced in to oil, but a collapse of the U.S. auto industry “would result in a very painful [price] correction, not only in crude oil, but also in the equity markets,” said Chris Lafakis, associate economist with Moody’s Economy.com.
The U.S. auto industry employs about 2 million workers, according to the Center for Automotive Research. That total includes GM (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler workers, as well as dealers and workers at parts manufacturers.
In urging Congress to pass the auto bailout, the White House cited jobless claims, which jumped to a 26-year high last week, according to the Labor Department.
Falling dollar: Oil prices also got a boost Thursday as the value of the U.S. dollar fell versus other major currencies.
The dollar slipped against the 15-nation euro, British pound and Japanese yen.
“We’re seeing concerns that all these bailouts are going to lead to more interest rate cuts and a weaker dollar,” said Phil Flynn, senior market analyst with Alaron Trading in Chicago.
A weaker dollar makes oil (which, like other commodities, is demoninated in dollars) cheaper for foreign investors, which spurs buying.
OPEC cut: Investors are also looking for a large cut in production from the Organization of Petroleum Exporting Countries, an international trade cartel whose members produce about 40% of the world’s oil, when it meets next week in Algeria.
Due to falling worldwide demand, crude prices have plummeted more than $100 a barrel since hitting a record high of $147.27 in mid-July.
The deep cut in prices has raised serious concerns for many OPEC members who rely on oil profits to fuel their domestic economies. more