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Oil rebounds on weaker US dollar
Source: Agencies |
May 10, 2011, Tuesday
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INVESTORS are buying oil again yesterday after last week's plunge, pushing prices up more than 2 percent yesterday to over US$99 a barrel.
Last week oil fell 15 percent, its steepest drop in two and a half years, in part because the US dollar strengthened. This makes oil more expensive to foreign buyers.
Monday the dollar weakened slightly against the euro as investor were less fearful that Greece would leave the Euro Zone and further weaken the euro.
That sent investors back to oil. In morning trading on the New York Mercantile Exchange, benchmark crude for June delivery was up US$2.06, or 2.1 percent, to US$99.24 a barrel.
"The sea change last week was the increase in the value of the dollar and the decrease of the euro," said Phil Flynn, analyst at PFG Best in Chicago. "What's driving us back and forth today is the negotiations on Greece."
Analysts say financial news from Greece and Europe will likely keep currency markets volatile. Oil and other commodities priced in dollars will follow.
When the dollar falls, investors tend to buy commodities hoping they will gain value as the dollar weakens. When the dollar rises, investors tend to sell their commodities.
Last week the European Central Bank signaled that the bank might not raise interest rates in June as investors had expected, leading to a sell-off in the euro. Then, Friday, a magazine report suggested Greece might abandon the euro.
But European Union officials suggested they may provide Greece more help, easing investor fears and leading to a rebound in the value of the euro. This was despite a downgrade of Greece's debt further into junk status yesterday by the rating agency Standard & Poor's.
Analysts say last week's plunge in oil and other commodities may only provide short-term relief from high prices.
The recovering US economy and the growing economies of Asia will increase demand for energy and raw materials in the coming years.
"The fundamental backdrop in the market remains entirely unaltered, with global oil demand still showing continued strength," Barclays Capital said in a report. "The general (oil price) trend from here should be higher, rather than lower."
In London, Brent crude for June delivery was up US$2.83, or 2.6 percent, to US$111.96 a barrel on the ICE Futures exchange.
In other Nymex trading in June contracts, heating oil rose 7.2 cents to US$2.9182 a gallon (3.79 liters) and wholesale gasoline added 12.44 cents to US$3.2145 a gallon (3.79 liters). Natural gas futures fell 0.3 cent at US$4.294 per 1,000 cubic feet (28.32 cubic meters).
Last week oil fell 15 percent, its steepest drop in two and a half years, in part because the US dollar strengthened. This makes oil more expensive to foreign buyers.
Monday the dollar weakened slightly against the euro as investor were less fearful that Greece would leave the Euro Zone and further weaken the euro.
That sent investors back to oil. In morning trading on the New York Mercantile Exchange, benchmark crude for June delivery was up US$2.06, or 2.1 percent, to US$99.24 a barrel.
"The sea change last week was the increase in the value of the dollar and the decrease of the euro," said Phil Flynn, analyst at PFG Best in Chicago. "What's driving us back and forth today is the negotiations on Greece."
Analysts say financial news from Greece and Europe will likely keep currency markets volatile. Oil and other commodities priced in dollars will follow.
When the dollar falls, investors tend to buy commodities hoping they will gain value as the dollar weakens. When the dollar rises, investors tend to sell their commodities.
Last week the European Central Bank signaled that the bank might not raise interest rates in June as investors had expected, leading to a sell-off in the euro. Then, Friday, a magazine report suggested Greece might abandon the euro.
But European Union officials suggested they may provide Greece more help, easing investor fears and leading to a rebound in the value of the euro. This was despite a downgrade of Greece's debt further into junk status yesterday by the rating agency Standard & Poor's.
Analysts say last week's plunge in oil and other commodities may only provide short-term relief from high prices.
The recovering US economy and the growing economies of Asia will increase demand for energy and raw materials in the coming years.
"The fundamental backdrop in the market remains entirely unaltered, with global oil demand still showing continued strength," Barclays Capital said in a report. "The general (oil price) trend from here should be higher, rather than lower."
In London, Brent crude for June delivery was up US$2.83, or 2.6 percent, to US$111.96 a barrel on the ICE Futures exchange.
In other Nymex trading in June contracts, heating oil rose 7.2 cents to US$2.9182 a gallon (3.79 liters) and wholesale gasoline added 12.44 cents to US$3.2145 a gallon (3.79 liters). Natural gas futures fell 0.3 cent at US$4.294 per 1,000 cubic feet (28.32 cubic meters).
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