The worst news Wednesday regarding oil wasn't its record high close of $143.57 per barrel. It was the dollar."There may be another record Thursday, and another Monday, and so on," energy trader Jim Dietz told BloggingStocks Wednesday.
The reason? Concern that the already weak dollar will fall further, Dietz said. The European Central Bank meets Thursday to vote on interest rates, with many economists expecting the ECB to increase it refinance rate by 25 basis points to 4.25%. If it does, the dollar may fall further, Dietz said.
Traders eye ECB meeting
"And if the dollar falls, that would put even more upward pressure on oil, so all eyes will be on that ECB decision," Dietz said. The ECB will announce its decision Thursday at 7:45 a.m. EDT. Oil tends to rise when the dollar falls, as investors / traders seek to preserve purchasing power of the decreased value of dollar-denominated commodities by bidding their price up. However, it's important to note that the dollar / oil correlation is not perfect: there have been instances in which the dollar fell and oil fell. Thursday won't be one of those instances, Dietz said.
"If we see a major move down by the dollar, say one cent against the euro, that will easily send us over $145 a barrel," Dietz said. As of late Wednesday afternoon, the dollar had already fallen about nine-tenths of a cent to $1.5882 versus the euro.
Lower than expected U.S. weekly oil inventories, which declined by 2 million barrels, versus the Bloomberg News consensus estimate of a decline of 700,000, also had oil bulls hitting the buy button.
The other major energy commodities closed mostly higher Wednesday. Heating oil rose 13 cents to $4.07 per gallon, unleaded gasoline increased about 4 cents to $3.55 per gallon, and natural gas fell 9 cents to $13.40 per million BTUs. Oil closed up $2.60 to $143.57 after hitting an all-time high intra-day of $143.91.
Dietz said some sentiment on the bear side had been supported earlier this week by the belief that a U.S. and global economic slowdown will slow oil consumption increases, causing a build in inventories. However, the bigger-than-expected draw on U.S. oil inventories and hawkish comments by ECB President Jean-Claude Trichet "balanced that sentiment with bullish views in a hurry," he said. Dietz added that he is presently flat, or has no open energy trading positions ahead of the 4th of July holiday period.
Further, Dietz could not be motivated Wednesday to offer a forecast regarding when oil's price will top, i.e. when a ceiling will occur.
"Trying to pick a top for oil in this market is like trying to fight the Fed," Dietz said. "And you know the Wall Street saying, 'Don't fight the Fed.' "
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Reader Comments (Page 1 of 1)
7-02-2008 @ 6:13PM
Stavros said...
Oil.When will this oil bubble burst?Why do Economists like myself make predictions on how high oil prices can go?There is so much speculation about oil prices that as intense was the rise so intense will be the fall.How can an analyst say that oil will reach that price within that period?Are we prophets?Gurus?Or just manipulating the market?Wall street seems to have no problems with manipulation these days.
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