Oil broke out of the $65-75 holding pattern of the last five months on strength of a declining dollar, speculation about rising consumer confidence, and potential growth next year in the global economy. Above $79 a barrel this morning before declining slightly, oil set a record high for this year of $79.05 and has been hovering just under that mark since.
As the market looks to 3Q profitability data from major retailers this week, including McDonald’s, Apple, Hasbro and Whirlpool, there is a strong desire to see overall consumption start to increase, which would further justify rising energy and commodity prices.
The dollar continues its decline, driving oil prices upwards, with the recent flap about China and Russia seeking to denominate oil in some other currency, calling its status as the reserve currency into question. This readily observable phenomena of the declining dollar is taken by many as a good hedge against falling energy prices, giving many the confidence to wade into otherwise murky water.
Vienna-based JBC Energy speculated that the rising price of oil was the result of financials and market psychology, not fundamentals, stating in a press release that “We see no reason why prices should not return to the $65-$75 per barrel bandwidth.” JBC noted OPEC’s surplus output capacity, rising inventories and falling profits for refineries amid a downturn in demand among the world’s industrialized nations as basis for this perspective.
Olivier Jakob, of Swiss oil market analyst PetroMatrix, confirmed this assertion regarding a lack of fundamentals. Jakob Indicated that oil is a very technical market and therefore volatile, even without logistical reasons to support such volatility, saying that “The move from $75 to $78 has been done … without any real fundamental development.”
NYMEX crude is up 0.35 cents to $78.88 as of 10 a.m. CDT, down slightly from the high water mark this morning of over $79 a barrel. Elsewhere on NYMEX, heating oil is up 0.0044 cents to $2.0341 per gallon, and natural gas rose 0.030 cents to $4.811 per 1,000 cubic feet. London ICE Futures for December delivery Brent crude fell 0.07 cents to $76.92.