Oil Prices Rise on Weaker Dollar and Rising Equities

Strategic Insights -

Oil prices surged on Monday, bucking earlier losses and concerns over the Dubai World debt crisis, as a weaker dollar and rising equities led to increased demand for crude. Light, sweet crude for January delivery traded 32 cents, or 0.4%, higher at $76.37 a barrel on the New York Mercantile Exchange, while Brent crude on the ICE futures exchange traded 36 cents, or 0.5%, higher at $77.54 a barrel. Analysts attributed the rise to the dollar's weakening against the euro, making oil cheaper for other currency holders, and the positive economic data and rising stock markets that have been indicative of growing oil demand.

Key Takeaways:

  • Oil prices rose significantly on Monday, despite earlier losses, due to a weaker dollar and rising equities.
  • The dollar's weakening against the euro made oil cheaper for other currency holders, leading to increased demand for crude.
  • Analysts note that oil prices tend to react to dollar movements in the absence of fundamental news.
  • Equity markets in the U.S. were also higher on their open, offering support to oil prices.
  • Lingering concerns over the Dubai debt crisis had led oil prices to fall earlier, but a statement from the United Arab Emirates offering liquidity to lenders eased concerns.
  • Oil prices have been trading within a range of $75-$80 a barrel since the middle of October, with low volatility due to a lack of macroeconomic or financial discontinuity.
  • A very large crude carrier transporting a cargo of crude from Saudi Arabia to the U.S. was hijacked by Somali pirates, but the news had little impact on oil markets.
  • Gasoline prices also rose, driven by traders buying back contracts and exiting previous bets that the market would fall.

Statistics:

  • Oil prices traded 32 cents, or 0.4%, higher at $76.37 a barrel on the New York Mercantile Exchange for January delivery.
  • Brent crude on the ICE futures exchange traded 36 cents, or 0.5%, higher at $77.54 a barrel.
  • The dollar weakened against the euro, trading at $1.5028, a level considered pivotal for oil prices.
  • Equity markets in the U.S. were higher, with the Dow Jones Industrial Average trading up 32 points at 10,342.
  • Oil prices have been within the $75-$80 a barrel band since the middle of October.
  • Front-month December reformulated gasoline blendstock traded 4.18 cents, or 2.2%, higher at $1.9680 a gallon.

Sources:

  • Dow Jones Commodities News
  • BBC Television
  • Barclays Capital
  • Claire Rangel, Dow Jones Newswires
  • Brian Baskin, Dow Jones Newswires