Oil edges lower, holds above $50

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NEW YORK (CNNMoney.com) -- Oil prices fell Friday but managed to close above $50 a barrel for the second day in a row as investors mulled the trillion dollar U.S. plan that is aimed at thawing credit markets.

Crude for April delivery settled down 55 cents to $51.06 a barrel. Oil prices seesawed through the session, rising as high as $52.13 a barrel and falling as low as $50.30.

Prices were volatile Wednesday after the Fed announced another another $1 trillion injection to stimulate credit markets, raising inflation fears.

Oil settled above $50 a barrel onThursday for the first time since late November, as significant weakness in the greenback pushed crude prices higher. But Friday, the dollar recovered some of the previous day's losses, keeping a lid on oil gains.

Crude oil is traded in U.S. dollars around the globe. When inflation fears rise, the dollar loses value, pushing the price of oil higher.

"In a blink of an eye the Fed with its unlimited power to print money can change the dollar value of a commodity or its long term trend in an instant," wrote Phil Flynn, senior market analyst at Alaron Trading, in his daily energy report.

Meanwhile, the market was uncertain about how the Federal Reserve's announcement's from earlier in the week would play out for the commodity markets and the economy. "The one thing that is for sure is that the rules of the game have changed," Flynn wrote.

Demand for oil remains very weak right now, which is keeping prices in check. However, one analyst said that the market is betting that in the longer term, oil prices will rise because of dollar inflation and economic recovery.

"If you look at the near term fundamentals for oil, they are still bearish," said Andrew Lebow, senior vice president of energy at MF Global. "And that was outlined in this week's EIA [Energy Information Administration] report."

On Wednesday, the government reported stockpiles of gasoline increased by 3.2 million barrels and crude supplies increased by 2 million barrels.

But, the Federal Reserve's aggressive moves could result in recovery in the economy in later 2009 and 2010, said Lebow, and that was pushing up the price of crude oil to be delivered later. Oil traders buy and sell oil to be delivered at a future date. "We are seeing a back end rally on crude," said Lebow. "Demand for the April contract was just not as strong today."

He also said that the Fed's spending initiative has caused inflation concerns, contributing to the rally in crude prices for delivery further out into the future.

Friday is the last trading day for for the April contract. Starting Monday, the May contract becomes the so-called front-month contract. Crude for May delivery was up 15 cents to $52.19 a barrel at 3pm ET.

A research report released Thursday by JPMorgan raised its year long estimate for the price of oil for 2009 to $49.38, up from its previous estimate of $43.25 for the year.

The report cites supply limits for the increase in price. "Despite weak economic growth, OPEC output adjustments seem to be setting the base for a tightening of oil market balances in the second half of the year."

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