Summary
The American Petroleum Institute released figures showing that crude stocks in the United States rose by 3.8 million barrels, exceeding the forecast easing market pressures.
This has moved the price of crude down to $78, which can have beneficial effects on both the US and global economies. Continuing upward pressure on market price could seriously and negatively impact economic recovery.
However there are still predictions that producing nations would be comfortable with higher crude prices.
Analysis
Technical analysts early this year had predicted that crude prices had the potential to exceed $100 per barrel, and some OPEC members said they would be comfortable with a price range of $90. However on Wednesday the Nigerian Oil Minister Rilwanu Lukman is quoted as saying that $80 was a fair price for oil that should encourage investment in new supplies.
One of the factors is pricing oil is the weakness of the U S Dollar. A weak dollar is considered beneficial for U S exports, since it makes them cheaper. However, crude and a variety of other commodities are priced in U S Dollars. A weakening dollar makes crude and other commodities cheaper for countries trading in non-US dollars.
Cheaper oil and commodities may mean increased consumption in those countries. However within those nations trading in US currency, those commodities cost more, and those prices are passed down to consumers, such as in higher prices for diesel and gasoline as we have seen over the past week at retail.
The weak dollar as well as an anticipation of future economic recovery have been among the technical drivers of the present market. Fundamentals on the other hand which include supply, demand and inventories have not until the API figures were released played a significant role in pricing.
Rising oil prices may be good for investors and non US denominated traders. However, since the majority of industrialized countries trade in the dollar, a fast rise in prices could trigger a set back in the global economic recovery.
With the US economy increased crude prices, as well as other commodities, can trigger a further slow down in US recovery efforts. Remember that petroleum products do not include just gasoline and diesel Included are plastics, fertilizer, heating oil which impact not only domestic production costs and consumer pricing.
Another under reported danger is that oil producers, as well as other commodity suppliers could decide to replace the US dollar as the international trading currency with either a basket of currencies, or with a more 'stable" currency. This has been proposed privately by OPEC members (Plan B one might say), and several governments have voiced serious concern over the continued weakness of the dollar and the United States appetite or addiction to debt and free money. Even the World Bank has publicly stated that the position of the US dollar is not sacrosanct as the international reserve currency.
While we aren't hearing a lot of public concern such a move especially in crude and commodities could result in a major dislocation for US companies and the consumer. Hence a two edged sword.
