Not even reports of China oil demand rising 12.5 percent in September from a year earlier, the fastest rate since June 2006, could keep oil moving higher in the face of a rebounding dollar. Commodities across the board took a step back as the dollar finally stepped up.
Oil initially went higher and then lower as the dollar waffled around before moving higher. Is it possible that all of a sudden the market place is worried that we may quit printing dollars? The fate of the extension of the first-time home buying credit that expires at the end of this month seemed to weigh on traders' minds on concerns that the credit might not be easily extended. Too big to fail legislation and worries about more bank troubles sent home builders and banks on a downward spiral. Of course if the government is showing signs of fiscal restraint the dollar would benefit. Yet at the same time commodities would get crushed. Add to that the fact that the month of October is coming to a close and funds fat with profits will be looking to book them and we had all the makings of a Monday correction.
At the same time OPEC is pledging to keep the market well supplied and the marketplace is pricing in the possibility of more OPEC oil. Whether they wait until the December OPEC meeting or just start cheating right away remains to be seen. The United Arab Emirates Minister of Energy H.E. Mohammed bin Dhaen Al Hameli said that OPEC member countries' commitment to provide adequate, secure and affordable oil supplies to the consumers through continuing their huge investments in developing spare capacity production. Bloomberg News is reporting that OPEC may increase production targets in December as oil rises above $75 a barrel, the group's president said, as the International Energy Agency warned rising prices threaten the recovering global economy. We have always defended a position of equilibrium, Jose Maria Botelho de Vasconcelos who is also Angola's oil minister, said in an interview late yesterday. Some countries are available to pump more oil into the market and if it comes to be necessary to pump more oil into the market this will be done. Bloomberg also reports that the IEA is warning that rising prices harm the economic recovery, quoting IEA Chief Economist Faith Birol as saying that with the strong rebound of the economy, we will see high prices, especially at this juncture, as a significant risk to the risk to the economic recovery.
Of course is the dollar really out of the woods? Are we closer to an exit strategy? Will more OPEC oil matter if the dollar keeps plunging? We have to watch developments, yet as long as oil stays above $75 the most likely target is $85. A close below $75 will signal a potential top that would perhaps signal that indeed the dollar is on the mend.
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Buy December crude at 7427 - stop 7300.
Buy December RBOB at 18000 - stop 17800.
Buy December heating oil at 19500 - stop 19300.
Buy December natural gas at 510 - stop 470.
Senior Market Analyst