Crude Prices Continue To Soar On Fuel Of Optimism

June 1, 2009 at 4:38 pm by CFDTrading Analyst

Commodities - Energy

Crude Futures Show Little Sign Of Slowdown

Crude Oil (WTI) $68.350 +$2.040 +2.81%

Crude prices continued to rise in the US session as dollar weakness boosted response to positive economic releases. Since crude oil is a dollar-denominated asset, any decline in the greenback will boost prices to make up for the lower buying power. As for the dollar, the large amount of capital injected into the financial system has not had a full impact on the currency in past months as it was supported by its safe-haven status. Given this attribute, there are two likely scenarios that can come about within the near-term. On the one hand, if a recovery truly takes root and the economy moves into a full-fledged turnaround, investors positioned in the US dollar as a safe-haven will likely continue to withdraw out of their positions, pushing the dollar lower. In conjunction with an increase in economic activity, this could push crude prices further. On the other hand, the economy may still be at risk. Many financials still face possible losses from a slew of securities related to residential mortgages, commercial mortgages, credit-cards, consumer loans, or student-loans—All of which present higher probability of losses in a downturn. If defaults do indeed occur (as some major Bank CEOs have already warned about), the financial system may once again face credit difficulties, halting a recovery. This could put a hold on current rallies and return attention to fundamental supply and demand forces that still make the make the case for lower prices. Until that happens however, crude prices may still show modest gains for the near-term.