Oil Prices Continues Downward Trend But Will It Last?
The price of crude oil has continued it’s downward trend into September as Mother Nature and foreign conflicts have only been able to stall it’s decline over the past three weeks. We saw oil try to rally on a couple of occasions since it fall from it’s mid-July record of $147.
The outbreak of hostilities between Georgia and Russia which put at risk a major oil pipeline only caused a minor hiccup. Fears of offshore drilling disruptions from Hurricane Gustav saw oil prices shoot up $6 dollars in one day only to fall by the same amount the following trading session.
The rise of the dollar has played a large part in the general retreat in the commodities market. After falling to record lows that coincided with oil’s record highs, there is a real feeling that we could be seeing the dollar beginning a period of renewed strength.
This a highly volatile market with large movement swings happening in both direction. We could easily see oil try to rally again if hurricane activity threatens the Gulf Coast drilling sites.
The same could be said about the dollar, no one knows how it will react in the upcoming months and if it starts to fall again we could see a lot of traders jumping back into commodities. Analysts are carefully watching the European markets, as long as their economic growth lags behind ours, the dollar should gain in strength.
Central banks will also play a major role as the relative interest rates of each country are a large factor in exchange rates. At the moment the Fed is more interested in economic growth, while the EU has maintained it stance against inflation, as for Japan, their interest rates are even lower than ours.
Has the oil bubble burst for good? You still have a lot of traders out there who think oil can recover and break $150 by the end of the year. Hopefully it will fall to $80, which oil producers believe should be it’s normal price range.
