Oil prices hit new highs for the year Thursday after a decision by the Federal Reserve to spend billions snapping up U.S. bonds sent the dollar tumbling.

Oil is priced in dollars and when the U.S. currency weakens, it essentially makes crude cheaper.

Benchmark crude for April delivery surged $2.17 to $51.07 a barrel in light trading on the New York Mercantile Exchange. Oil prices hit $52.25 earlier in the day, a price last seen on Dec. 1.

With the April contract set to expire Friday, most of the trading had shifted to the contract for May delivery where prices jumped $2.38 to $51.28 a barrel.

Analysts said investors flocked to crude stocks after the Federal Reserve announced late Wednesday it would buy long-term government bonds, a measure that’s expected to jolt the economy with lower rates on mortgages and other consumer debt.

The Fed also said a $1 trillion program to jump-start consumer and small business lending could be expanded to include other financial assets.

“You’re seeing wild swings in a lot of commodities today,” said Phil Flynn, analyst at Alaron Trading Corp. “The government is basically printing money to buy back all this paper, and it devalues the dollar.”

The U.S. dollar dropped against other major currencies Thursday morning. The euro traded at $1.3691, up more than 2 cents.

Flynn said the rise in oil shouldn’t be taken as a sign that the economy in on the mend. The Fed is using all of its powers to prop up American businesses, “and this is one of their last shots,” Flynn said. “If this doesn’t work, they’re out of bullets.”

Oil got more expensive despite a government report Thursday that said jobless claims set a new record for the eighth straight week. The Labor Department said continuing claims for unemployment insurance jumped 185,000 to a seasonally adjusted 5.47 million, another record-high and more than the roughly 5.33 million that economists expected.

Initial claims dropped to a seasonally adjusted 646,000 from the previous week’s revised figure of 658,000, however. That was better than analysts’ expectations.

The government also reported Thursday that people continue to cut back on driving. The Federal Highway Administration said motorists logged seven billion fewer miles in January, 3.1 percent less than the same period in 2008.

The dour economic news did little to dissuade investors as prices topped $50.47 a barrel, the previous high for 2009.

Cameron Hanover analyst Peter Beutel said if crude sets a new high for the year, it means that OPEC production cuts, the federal stimulus package and other bullish factors “are working together to be more important at this moment than the recession and its impact on demand.”

“It means things are better than they’ve been in a while,” Beutel said.

Investors could pour even more money into the oil market if prices stay above $50 a barrel, forcing crude prices even higher, he said.

Elsewhere, natural gas prices surged Thursday on a government report showing that U.S. stockpiles fell slightly more than expected last week.

The Energy Information Administration report said inventories held in underground storage in the lower 48 states fell by 30 billion cubic feet to about 1.65 trillion cubic feet for the week ended March 13.

Gas prices increased 1.3 cents a gallon overnight to a new national average of $1.933 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Pump prices are 2.7 cents a gallon cheaper than a month ago and $1.346 a gallon cheaper than last year.

In other Nymex trading, gasoline for April delivery jumped 5.3 cents to $1.4186 a gallon, while heating oil rose 7.85 cents to trade at $1.3425 a gallon. Natural gas for April delivery rose 42 cents to $4.10 per 1,000 cubic feet. In London, Brent prices rose $2.62 to $50.28 on the ICE Futures exchange.

(Source: AP)