Oil Futures Stabilize Despite Devaluing Dollar
The dollar continues to slip in value compared to other currencies, driving down equity markets. Given this trend, it is surprising that crude oil futures showed a slight increase this morning. Light crude traded up 0.3%, or $75.64 per barrel for September delivery, while the Brent crude standard traded down just $0.01 per barrel. The near neutral prices have been observed now for two straight sessions following last week’s $5 drop.
Given the dismal forecast of the global economy, traders are closely monitoring the value of the dollar in order to find the safest investments. They are not turning solely to the stock market for cues of future growth and demand. Oil analyst Phil Flynn explains, “The market is really focused on both of these things, not just the dollar, not just the stock market. For today, the dollar has taken a more dominant role, but it slips back and forth.”
One explanation for the impact on oil futures is that as the dollar decreases in value, oil becomes cheaper for buyers using alternate currencies. This makes U.S. oil more attractive, and gives the market a slightly higher demand. The recent fluctuations in the dollar have gotten the attention of traders for this very reason.
Equities opened lower than expected this week due to the sluggishness of manufacturing in New York. The Empire State’s business conditions index has bounced back to 7.10 from 5.08 in July, but economists were hoping for a bigger recovery near the 8.5 mark this month. Even futures for the Dow Jones Industrial Average (DJIA) are down 18 points.
Currently, crude oil and refinery product supplies are high. With so many stockpiles, manufacturers and refineries have to monitor oil demand and adjust production rates accordingly. Last week, the Organization of Petroleum Exporting Countries issued a new report, showing an increase in the forecast on global oil demand growth over the rest of the year. The report is in agreement with the most recent statement from the International Energy Agency. The forecast is still tentative.
Given the stagnant economy in Japan, some feel that oil prices will continue to decline. They expect barrels to hover above $70 in value until the heart of hurricane season. According to the National Hurricane Center, the low-pressure region currently situated above the northern Gulf has a 60% chance of turning into a full cyclone this week. Severe storms can slow oil mining, which causes fuel prices to spike if the stockpiled reserves are insufficient to meet the market demand.