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By William Patalon III
Managing Editor
A drop in inventories and continued weakness in the U.S. greenback sent crude oil prices rocketing to an all-time high of $97 early today (Tuesday), a jump of more than 3%.
In early afternoon trading, crude oil for December delivery was still trading at $96.70 a barrel on the New York Mercantile Exchange.
[For some carefully considered ways to invest in energy, please click here for the latest Money Morning investment research report, "Three Ways to Profit From High Gasoline Prices," which was written by Contributing Editor Keith Fitz-Gerald. The report is free of charge].
Yesterday (Monday) crude oil actually declined $1.95 a barrel, or 2%, to close at $93.98.
Today, however, crude oil futures were part of a broader commodities rally, experts say. As the dollar continues to spiral downward against other major currencies, the U.S. stock market eventually will decline and will even sell off steeply. Investors will increasingly turn to commodities of all types as a profit haven.
"As the dollar sells off, as foreign currencies look to un-peg from the U.S. dollar, as the stock market continues its shakiness and eventually corrects significantly, watch for commodities to be your savior," Zachary Oxman, a senior trader at Wisdom Financial, told MarketWatch.com.
Added Oxman: "We are in a commodities bull market. Gold, crude, grains, softs, metals, everything that is a commodity is in fashion."
Gold for December delivery jumped $14.20 an ounce today, reaching $825 on the New York Mercantile Exchange. Earlier, that same gold contract reached an intraday high of $826. The record high for Nymex gold was $875, set on Jan. 21, 1980, and the record settlement price was $825.50 – set on that same date.
In addition to chronicling the upward march in crude oil prices, Money Morning has also closely covered the bull market in commodities. Indeed, in recent months, Money Morning has featured the commodities-related recommendations of investment guru Jim Rogers, and detailed specific profit opportunities in such commodities as wheat and milk.
[For a related Money Morning news story on investment opportunities in gold, please click here].
Oil prices have demonstrated a "remarkable resilience," meaning that "price corrections continue to be shallow and short-lived," John Kilduff, an analyst at MF Global, wrote in a research note. "Doubtless, even though the market retains the technical capacity to stage a more extensive price correction, participants are probably very reluctant to press the short side of this market ahead of this week's inventory reports [since] expectations are for a considerable decline in crude stocks, largely due to recent disruptions in Mexico's oil shipments."
In fact, the American Petroleum Institute and the U.S. Department of Energy will release each release a report on energy supplies tomorrow (Wednesday). For the week that ended Nov. 2, energy analysts are predicting that crude-oil inventories will decline by 1.6 million barrels, Dow Jones reported. They projected an increase of 200,000 barrels in gasoline inventories, and also expect that distillate supplies will fall by 800,000 barrels.
Low imports caused crude-oil inventories to decline a total of 9 million barrels in the past two weeks, though that import data did not reflect the impact of the three ports closed in Mexico due to bad weather. The United States imports 1.4 million barrels of oil per day from Mexico. If imports from Mexico also decline, oil prices will soar even higher.
The dollar is helping fuel the increase in oil prices. When the dollar falls, holders of other currencies usually flock to oil as an investment play.
With credit concerns continuing to plague the global markets – but particularly the United States – the U.S. greenback today dropped to a new record low against the euro, with the European currency climbing as high as $1.4571 – the currency’s highest level since the euro began trading in January 1999. The pound sterling was trading at $2.0857 after earlier rising to a 26-year high of $2.0907. It was at $2.0806 yesterday (Monday).
The euro's record high would be equal to 1.3423 deutschmarks, supplanting the German currency's all-time peak of 1.345 reached March 8, 1995, according to Ried Thunberg ICAP.
The pound sterling was trading at $2.0857 after earlier rising to a 26-year high of $2.0907. It was at $2.0806 yesterday.
The dollar index – which tracks the U.S. currency against a basked of six major currencies – fell about 0.5% to 76.045, MarketWatch reported.
Given that the U.S. Federal Reserve has cut interest rates twice since mid-September, and is expected to further reduce rates from the current 4.5% level, the dollar may have further to fall. Making this dour outlook even more likely are the other key central banks, which are holding rates steady, making their own currencies more attractive than the U.S. dollar. The European Central Bank is generally expected to hold its benchmark steady at 4%, while the Bank of England – which is set to review rates Thursday – will leave that country’s benchmark lending rate unchanged at 5.75%.
The U.S. central bank finds itself in a tough spot: Fed policymakers believe they need to keep reducing interest rates to maintain economic growth in the U.S. market, which is struggling under the yoke of massive mortgage and credit issues. But to get the dollar to strengthen – and avoid inflation – the central bank really needs to be raising interest rates.
But the Fed won’t be raising rates anytime, soon.
News and Related Story Links:
- Money Morning Investment Research Report:
Three Ways to Profit From High Gasoline Prices. - MarketWatch.com:
Crude Oil Rallies to New Record High of $97 a Barrel. - Money Morning Investment Analysis:
Crude Oil Bull Could Bring About a Global Bear. - Money Morning Investment Research Report:
Jim Rogers Warns of Fallout From Fed Cuts; Says to Seek Profits in Commodities, Asian Currencies. - Money Morning Investment Research Report:
Four Ways to Profit as China Ignites Global Milk and Dairy Prices. - Money Morning Investment Research Report:
Wheat’s Forecasted Price Drop Highlights Profit Plays in Commodities. - Money Morning News Analysis:
Oil Hits New Record High, Breaking $94 a Barrel. - CNNMoney.com:
Exxon Mobil: $9.4B Profit in 3 Months. - Money Morning:
Soaring Oil Prices Spell Trouble For Emerging Markets. - Money Morning:
Oil Heads For $100 a Barrel, While Some Speculators Brace for a Correction. - Money Morning:
Chinese Inflation Continues Unabated, Reported at 6.2% for September. - Money Morning:
Record Oil Prices Continue to Push Canada’s Dollar, Inflation. - Money Morning:
Soaring Oil Prices, Debt Concerns Send Stocks Skidding Yesterday; Oil Spikes in Asia Today. - IHT:
Oil Prices are too High, China Tells OPEC. - IHT:
OPEC Says Pumping More Won’t Bring Oil Price Down. - Bloomberg News:
Record Oil Price May Stunt Asia’s Growth and Stoke Inflation. - Bloomberg:
Oil Traders Increase Bets on $125 Crude as Options Trades Jump. - CNNMoney:
Weaker economy could be tipped into recession by $90 oil – Oct. 30, 2007.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.