Crude oil prices trading up on weak US dollar

Published on October 7, 2009 by oilprices · 1 Comment

Crude oil prices remained in the early 70′s on Wednesday as traders took their cue from the weak US currency, hit by a report that Gulf states considered dropping the dollar for oil transactions.

A struggling greenback tends to boost crude because the US dollar denominated commodity becomes cheaper for foreign buyers holding stronger currencies. “Primarily the weakening of the US dollar prompted some capital inflows back into the crude,” said Jim Ritterbusch of Ritterbusch Oil Associates.

The analysts said the level of 70 dollars “acts like a magnet, which keeps pulling the market back in whenever it gets down towards 65 or up towards 75,” he said.

Pressure on the dollar came after a report in The Independent daily in London said that Arab states had launched moves with China, Russia, Japan and France to stop using the dollar for oil trades. “Such a step, although dismissed almost immediately by Saudi Arabia, Russia, the UAE and Algeria, obviously weakens the dollar, which should be supportive for oil prices, in dollar terms that is,” said PVM oil market analyst Tamas Varga. Qatar and Kuwait also denied the report.

Some analysts said the oil price rise would be temporary before fundamentals take over. “We think the support from a weaker dollar is temporary as the market needs to see firmer oil specific fundamentals to move higher,” said Amrita Sen of Barclays Capital.

The market has been worried about rising oil stockpiles in an indication that the global economy is still facing problems inducing growth from recession as a result of the financial crisis. “So once again outside macroeconomic forces saves oil from collapsing under the weight of massive over supply,” Phil Flynn of PFG Best said, citing The Independent report.

The US Energy Department’s weekly inventory report is expected to show that that “crude and product inventories probably rose last week,” said Mike Fitzpatrick of MF Global. “Even so, investment demand for oil should more than make that up.”

Tags: oil prices