Oil prices rose to new highs today, with crude moving up as high as $103.95 earlier in the session, before cooling off slightly. Prices are now trading at $103.36, up $1.52.There are two main driving forces today that are pushing prices higher. The first is the continued weakness of the U.S. dollar, and the second is the general consensus that OPEC will decide to leave output unchanged at this week's meeting.
First, taking a look at the dollar, today it hit a new record low versus the euro. The dollar continues to suffer as world markets prepare for a possible recession hitting America this year. With America's economic slowdown on traders' minds, the dollar continues to fall as many expect that the Federal Reserve is going to be forced to cut interest rates even further to keep the economy moving. Of course, any rate cuts will only further weaken the already struggling currency.
Not only is the dollar currently trading at the lowest level on record against the euro, it has also moved into a three-year low against the Japanese yen. For the fifth straight day the dollar has declined, and went under 103 yen earlier in the day.
The next bullish factor keeping oil strongly above the psychological $100 barrier is the growing consensus that OPEC will leave its output unchanged at this week's meeting. This should come as no surprise to my readers, since last week I took a more in depth look at the current situation that OPEC finds itself dealing with. Some had hoped that OPEC would come in and lift its output a bit in order to cool off prices, but that just does not seem to be the route that the oil cartel is going to take. OPEC has argued that the recent run-up in price has nothing to do with underlying fundamentals. The group points to a couple of pretty convincing reasons as to why it should not lift production at this time:
- rising inventories in America
- slowing U.S. economy that threatens to spread and lower oil demand globally
Maybe there will be a surprise announcement this week, but as I discussed last week, I still believe that OPEC will not make any move at all.
Here is a current chart of oil to see just how strong the recent price surge has been:
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.
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Reader Comments (Page 1 of 1)
3-03-2008 @ 7:23PM
Steve said...
The two main drive forces that drive up oil prices is Bush & Chenny. Opec is crap too.