The oil continues to surge as the US economy continues to stay in recession. While the US is in recession the greenback is losing its value, which therefore investors seek opportunities to invest in dollar backed commodities like oil. Also in news the stock market stumbling and recording losses whereas traders are more encouraged to invest in the stable market of crude. Last week, we saw a slight drop in oil prices of about $0.12 which is a reason for profit taking but still the trend is towards the upside. The markets closed at $110.21 per barrel reaching a high of 110.92 per barrel and a low of $108.84 per barrel.
The dollar continues to depreciate due to Bear Stearns collapsing and JPMorgan Chase taking over with stocks, aroused more fears to the US economy that more financial companies could be following the lead soon. JPMorgan Chase is buying Bear Sterns for $240 million and that Bear Stern will acquire stocks in JPMorgan worth $2 a share. After the Feds saw the lack of confidence in the financial markets, they cut their discount rate by 25 basis points to 3.25 points.
As the US economy is shaken due to the banks fall, the Feds initiate the rate cut will be 75 basis points again gaining 25 basis points from what it was initiated last. The weakened greenback is encouraging foreign investors to enter the crude market as it is cheaper for them to invest in since it is bought and sold in dollars due the stronger currency. Of course, traders fear the US dollar as an investment and turn to the hedge against inflation and the safe haven like crude to invest in, causing prices to rally. Today the markets opened at $110.10 attaining a low of $109.78 per barrel and a high of $111.80 per barrel.
Traders all around are ignoring the dampened demand on oil from the US which is known to be the world's biggest consumer, and focusing more on the weakened greenback which will steady cause crude to gain momentum.