Oil prices have climbed back to $72 a barrel after the U.S. dollar turned softer. Russia’s President Dmitry Medvedev today called for creating new reserve currencies one day after the country’s finance minister “said the dollar was unlikely to lose its key status in the near term,” reports CNNMoney.
“Speaking at a regional security summit in Siberia, Russian President Dmitry Medvedev called for ‘creating new reserve currencies,’” said CNNMoney.
His statement echoes the Chinese call for an international reserve currency and follows his public fears about the value of the greenback. Russia is the fifth-largest holder of U.S. debt. China is number one.
On this news, the U.S. dollar pulled back.
MarketWatch’s Polya Lesova and Myra Saefong write, “Helping set the trading tone for crude, the dollar lost ground after two days of strong gains in the currency markets.”
Dollar weakness typically boosts dollar-denominated commodities such as oil, says MarketWatch.
So while global demand has slackened from the financial crisis, the U.S. dollar is the biggest factor manipulating oil prices. But energy inventory data is coming out soon, and this could also affect where oil prices head.
Many analysts are expecting a decline in crude inventories, which would certainly raise prices as it can indicate demand is growing.
In all, that could mean that global economies are improving. So while dollar strength is a major factor moving oil prices right now, there’s only so much upside potential in crude price rises without support from an economic recovery.
But one technical analyst, Daniel Bruno – CEO of Capital Management in New York – told Bloomberg crude oil prices are headed for at least $79 a barrel, and could push through to $83.
“Oil is in a formation known as an ascending triangle, Bruno said, trading between a horizontal line of resistance at $78.96 a barrel and a rising support line. Resistance typically fails in such a pattern, allowing prices to move higher,” reports Bloomberg.
Current technical support is at $70 a barrel, but oil prices could also be supported at $60 a barrel if the higher level of support is broken, says Bruno.
What does that say about the fair price of oil, though? Saudi Arabia has maintained that $75 a barrel is a fair price for oil. The largest oil producer, speaking for OPEC, named this number before the price spike, and is reaffirming this level.
The softer dollar has pushed oil prices back above $72, so crude is approaching this fair value price.
Or is it?
Justice Litle, editor of Macro Trader, writes, “The idea that an exceedingly weak global economy can handle $70-$80 oil, even as U.S. interest rates are rising, seems a bit of stretch. In that light, crude oil futures look temptingly overextended here.”
Aside from the U.S. dollar, Justice says there’s another factor that’s been propping up oil prices.
He told Macro Trader readers, “Desperate hedge funds, hoping to claw back 2008 losses, could be another part of the ‘perception vs. reality’ issue. Some of these guys have been pushing the markets hard, and may well have pushed them too far.”
Justice says if the energy complex breaks down, oil should fall fast and hard.
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