Oil prices ticked higher than $50 a barrel today on the back of a rally in the stock market and a weaker dollar.
Earnings have driven the markets higher, which has lifted oil stocks and also raised economic hopes – inevitably leading to an expected recovery in demand…
“For much of the week,” reads a CNNMoney article, “oil trade has been influenced by equity markets, viewed as an indicator of future economic strength and the potential for higher oil demand, and fluctuations in the dollar price.”
The Wall Street Journal reports, “Though new inventory data this week showed U.S. stockpiles of crude at historic highs, traders and analysts say the market is beginning to reflect early bets on summer driving season.”
“You really have demand destruction now,” Tariq Zahir, managing member of the New York-based trading firm Tyche Capital Advisors, told MarketWatch. “But you get a little bit support [in the following months] with the hurricane season coming up, and of course the driving season coming up, that can keep the price further out high.”
The other factor affecting oil prices is the U.S. dollar.
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The greenback weakened yesterday and today, and as oil is priced in U.S. dollars, the weaker the currency, the higher the price. And the higher the price climb, the more attractive an investment looks.
The dollar has weakened against the euro, the yen and a basket of currencies, reports CNNMoney.
But while this dollar weakness has supported higher oil prices, the affect has been muted by the high stockpiles due to slow demand.
Today is, however, the fourth day in a row oil prices have climbed, and oil futures are up 15% on the year, according to Bloomberg. Prices are heading for their first weekly gain in three weeks.
Back in mid-March, Macro Trader editor Justice Litle wrote, “Oil appears to be putting in a rounded bottom... I remain mildly wary of oil, mainly out of concern this rally is not the ‘real thing’ (a prelude to full global recovery). But, given that, the charts are hard to ignore and this move could potentially last a couple months, even if it ultimately fizzles out.”
With a couple months of potential climbs, Justice thinks fall-dated options on oil-based ETFs could give investors some time to watch the move in oil prices play out.
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