Oil rises, as the Dollar Weakens over Euro

Oil rises, as the Dollar Weakens over Euro

On October 12, 2011 oil prices have taken a leap further by reaching $ 86 a barrel. This came along with a weaker dollar, and the persisting concerns regarding the debt crisis that is plaguing Europe. There was yet another spasrk to fire rendered by the International Energy Agency which lowered its demands.

The Wednesday afternoon saw witnessed the Benchmark crude that was up for November delivery, rising by 70 cents, and reaching a price of $86.51, as reported in the electronic trading exchange of the New York. The contracts settled at $85.81 a day before, in New York.

A recent report of unexpected inched up production in seventeen countries that use the same European currency led to an overtaking of dollar by euro. This further eased up concerns that had built up recently about the economy entering a phase of recession.

Moreover it is this weakening of the dollar that has resulted in the rise of commodity prices especially the oil which however became cheaper for investors with currencies other than dollar.

The recovering Libyan oil supplies have further created a comfortable position; experts from IEA opine though that the 2012 – supply-demand balance remains mainly unchanged. But it is this factor plus the betterment of the Eurozone crisis are two prime factors that are going to control the dynamics of the oil market, for the next 18 months to come.

Markets are also watching out for the earnings reports from corporate entities, as this shall reflect the direction of US economy and the demand for crude too.

Ritterbusch and Asoociates’ energy consultant says, "From a longer term perspective, we still see a choppy, wide swinging trade that still includes the possibility of a retest of last week's lows.” Investors are also expected to monitor information regarding the stock piles of crude in US.

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Sunny Picture in oil Markets

The first week of October 2011, got some good news for the oil markets, as the choppy session ended on a higher note on October 7. The week saw oil gaining 4.8%, highest gain ever since early March. The job reports from the US which was far better than expected brought about this gain in an otherwise low trade, overall.

Italy along with Spain are two large economies in the Eurozone countries, and debt crisis if centers from them, has the potential to bring the euro down. 

The Energy Department would receive a report regarding the crude oil supplies that fell by 300,000 barrels a week that ended on October 7, 2011. Analysts the world over also expect a rise in gasoline supplies, which is expected t be by 100,000 barrels; distillate stocks might fall by 600,000 barrels, and refinery utilization is expected to decrease by .63 percentage. 

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Furthermore, the US Department of Energy has released a weekly inventory that refers to surprising build up of the stock piles of crude, which was on a declining trend for the past three weeks consecutively. Gasoline as well as distillate stocks too added to the stockpiles. This report is an essential tool that most investors across the world expect in order to help them understand the dynamics of supply and demand of oil products. It is also an important indicator of current oil prices, and the associated volatility that in turn affects the businesses of various companies that are engaged in the oil and refinery business. 

The EIA report by the Federal Government revealed a report on crude and said that the inventories rose by 1.92 million barrels, for the week which ended in September 23, 2011. The preceding week however witnessed a drop that was largest.

On the contrary though, crude inventories at the Cushing terminal located in Oklahoma, which is the key delivery hub for the United States crude futures.

Oil faces a drop as a result of Low US demands and Denial by Saudi Arabia

It’s a second day that the oil has dropped in New York, on apprehensions of a weak demand for fuel by the US, along with a slow import of crude from China. There is a feeling that the world’s leading energy consumer will decrease its demands. 

There was about 1.9 percent drop in the futures on October 13, 2011. Further reports from the American Petroleum Institute said that the demand for gasoline too slid, remarkably since last five years. China’s net imports of crude has declined said the custom bureau. 

“Oil prices are still high compared to the economic risks we face, not only in Europe but also in the U.S. and Asia,” said Sintje Diek, the analyst at HSH Nordbank in Hamburg who so correctly said in January that prices would fall in the next half of the year 2011. “Overall, volatility is very high.”

Furthermore on the New York Mercantile Exchange, the crude for November delivery declined and reached $83.94 a barrel. However at 1 pm (London Time) on the same day it was at $84.11. Overall this year the prices are down by 8 percent. 

Meanwhile Saudi Arabia, the largest producer of oil in the OPEC declined any excess oil production, and the oil minister, Ali-Al-Naimi said that they have strived hard to match the demands in the oil markets. Libya on the other hand, has a potential to produce as much as 100,000 barrels per day on an average basis, while Saudi Arabia can produce only 9.76 million barrels per day. Libya thus is the only country presently which is not producing oil beyond its official limits. 

Oil may further increase losses in the New York futures of the IT industry. Prices have increasingly come to close around the $84.86 per barrel a day. 

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OPEC’s Demand Forecast and the Wobbling Prices

Oil prices witnessed a remarkable wavering on October 12, 2011, as a result of OPEC’s trimmed estimates of Oil demands across the world. It further added that there would be no increases in the demands next year too. 

The morning markets though experienced a fall, letting the crude fall but in the afternoon it rose by 5o cents, and reached at $85.91 a barrel in New York. Brent Crude also witnessed a remarkable inching, and rose to $107.71 a barrel in London. 

Oil prices have been rising since past five days, due to the easing of concerns regarding the US economic recession. Simultaneous hopes on Europe’s efforts to resolve the debt crisis have made the prices ease off too. Walter Zimmerman, analyst at ICAP said that, "The stock market has been leading oil prices around by the nose,"

The stock market is also being used rampantly to measure the economic issues and hopes around the world. Currency trends and economic fluctuations are major factors that affect the oil fundamentals. “Nothing else seems to matter,” said Zimmerman.

OPEC further said that the weak economy across the world was a major factor that took its toll on oil demands. This is typical of developed countries. 

Gasoline prices at pumps remained unchanged, the national average being at $3.40 a gallon, as reported by the AAA. This was in fact 59 cents higher than what was last year.

The coming weeks’ movements of the stock market, will further affect the rise and fall in the oil market. OPEC is the largest oil producer in the world, and has set quotas for its 12 members, to effectuate stable oil prices. It has advised higher production if there is a rise in demand and lower productions if there is less demand. Heating oil was also unchanged at #2.9002 a gallon.