Anorak News | Hedging The Dollar On Crude Oil

Hedging The Dollar On Crude Oil

by | 6th, May 2008

US light sweet crude rose to a record of $120.36 a barrel in New York yesterday.

It then fell back (surely, swooned – Ed) to a record close of $119.97 – up $3.65.

Anyone who thinks it will end there can take the sell.

The rest of you worried about rising energy costs, rising fuels costs and why filling your lighter costs more than a pack of fags used to in 1950, can take the buy and try to earn enough to buy, well, oil.

You think oil is a stable market?

“Nigeria is the lingering hotspot the markets will be focusing on,” says MF Global analyst Ed Meir. Reports are that “rebels” have attacked oil wells and pipelines which lead export terminals.

Nigeria produces a lot of oil. If this oil cannot get to market, then there is less oil in the marketplace and those who have oil find that it is in greater demand and so worth more. Oil goes up in price.

And over in the exotic regions of Northern Iraq, the Turkish military is fighting the Kurdish insurgents.

Oil is a stable market? On the markets, 63.4 per cent of you are backing more rises.
But it’s not all about violence. There’s the US currency.

Says Damian Cox, of John Hall Associates, to the BBC: “Since about August, commodities appear to have been responding to movements in the currency markets. As the dollar has weakened, some people have moved into commodities.”

So oil is being used to hedge against the weak dollar. Which means that if the dollar begins to strengthen then oil will weaken. Right?

But if people see oil as strong they will be less likely to out their money in the US and so the dollar remains weak. Discuss.

At the time of writing, one pound equals $1.97229. That’s a little down from the 52-week high of $2.11610 but up on the 520-week low of $1.93340.

Most punters on Tradefair think the dollar will weaken against sterling.

British holidaymakers looking for alternatives to the costly euro may well agree…

Posted: 6th, May 2008 | In: Money Comment | TrackBack | Permalink