Dollar concerns lead to another record high for oil

Posted Apr 16th 2008 10:12AM by Michael Fowlkes
Filed under: Before the Bell, International Markets, Consumer Experience, Middle East, Commodities, Oil

Another strong start to the day for oil prices, as the weak dollar has led traders to push oil up to another new high today of $114.53, though it has moved a bit lower in early morning trading.

As we noted last night, there were several factors at work yesterday, but today's move is being attributed mostly to investor fears over the weak U.S. dollar. The euro has been moving strongly lately, and continuing to trade at record levels against the dollar, currently trading at $1.5966.

It is strange writing about oil's recent run up because typically we would be talking about supply and demand, but that is just not what is pushing prices higher. Traders are moving into oil (and all commodities) mainly because they are just flat out out-performing the stock market, and with the dollar continuing to fall, the procession into commodities still has a way to go before traders get tired.

Some analysts had been hoping to see interest rate cuts by the European Central Bank, but with Europe's current inflation numbers, the odds are not looking too favorable. March saw annual inflation numbers in the euro zone rise to 3.6%, putting an end to much rate cut discussions.

While the dollar is mostly to blame for this morning's movement, traders are also paying attention to inventory numbers. In fact, the weekly inventory report from the Energy Department will be out later this morning, and if we see any sort of bullish report, we could very well be looking at $115 by the end of the day.

Analysts are expecting to see a rise in oil inventories of 1.5 million barrels, and for gasoline they are looking to see a drop of two million barrels.

The question will be, what will happen if we see a bearish inventory report? Will traders shift their attention to supply, or continue to remain focused on the dollar? It will be interesting to see.

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.

Tags: dollar, euro, europe, inflation, interest rates, InterestRates, inthenews, oil, oil inventories, oil prices, OilInventories, OilPrices