Although crude oil prices are constantly reaching the record level of $120 per barrel continuing their rally, last week they lost ground. At the week ended Friday May 2nd, oil prices in New York stood at $116.32 per barrel and were 1.85% lower compared with the price of $118.52 per barrel on Monday 28th of April. For oil market analysts, last week's fall was just a break, as they underline that the short term target is the level of 120 dollars. But this positive for the consumers trend may be continued for a little while, as the dollar's strength against the euro will help alleviate for a while the pressure on crude oil markets.
The dollar rose to the highest level in five weeks against the euro on speculation the Federal Reserve will stop reducing borrowing costs. The decline of the dollar over the past year prompted investors to purchase commodities as an inflation hedge. U.S. crude-oil inventories climbed in 13 of the past 16 weeks, an Energy Department report showed on April 30.
The June crude oil contract also declined by $2.20, or 1.9 percent, to $116.32 a barrel this week on the New York Mercantile Exchange. Futures reached $119.93 a barrel on April 28, the highest since trading began in 1983.
This is the 17th straight week that analysts have forecast a drop in prices. The oil survey has correctly predicted the direction of futures 50 percent of the time since its introduction in April 2004.
Many analysts believe the weakness of the dollar is a bigger factor than supply and demand, because a soft dollar sends investors worried about inflation into commodities such as oil and gold. One of the reasons oil prices edged down a bit later in the week was the dollar rose to its highest level against the euro in five weeks.
A weak dollar makes commodities less expensive for buyers operating in other currencies. Some market-watchers say oil will probably keep rising until demand falls off, which they describe as the market's way of finding fair value for the commodity. For oil, some estimate that price as low as $60 or $70 a barrel.
"The fundamentals don't justify anywhere near these prices, even when you factor in geopolitical problems," said Michael Lynch, president of Strategic Energy & Economic Research in Cambridge, Mass.
At the same time, some analysts are expressing their doubts about the prospects of crude oil markets. Oil's meteoric rise to nearly $120 a barrel looks like more than just another economic bubble as slower demand and growing supplies are unlikely to keep prices high. On the other hand, the opposite opinion is not favourable for the consumers and the world economy, as some analysts say even $200 a barrel would not be unthinkable.
|
