Oil Prices Rise Above $60 As The Dollar Continues To Weaken

Posted on 21. May, 2009 by Ross in Energy Prices

OPEC countries are starting to breathe a little easier as their productions cuts, coupled with the weakening dollar, have seen crude oil prices cease trading above $60 for the first time in six months.

Oil prices had slumped below $40 back in March, but have since seen a strong resurgence through a combination of China building up reserves of cheap oil, speculators capitalising on expected price gains and OPEC members slashing production in order to bolster prices to rescue governments’ oil-based spending commitments.

Whilst demand still remains well below normal due to the worldwide recession, the price of crude oil has recovered strongly after taking a battering with every bad news story emerging from struggling economies, much to the surprise of many analysts. Despite massive oil stockpiles, the American gasoline inventory dropped by triple the predicted amount last week, and continuing security concerns in Nigeria have also pushed prices up further.

One of the key factors in the price surge, though, is the weakening of the US dollar, which could add weight to calls by China for a new world reserve currency. The Financial Times chose to highlight the trend yesterday using a couple of graphs clearly demonstrating the correlation between the weakness of the dollar against the rise of oil prices.

Correlation between the weakness of the dollar and the strength of oil prices

With some analysts anticipating the US economy to soon enter a state of hyper-inflation, with the value of the dollar expected to halve over the next ten years, don’t expect to see oil prices do much but continue their upwards trajectory for the foreseeable future. OPEC’s aim to see oil prices return to $100 by the end of the year could still come to fruition…

Image by fotographix.ca @ Flickr