Skip navigation
Watchlist Sponsored By :


Current DateTime: 05:46:22 24 Nov 2009
LinksList Documentid: 24355697
  • Runway Angels

      The superbowl of fashion shows, models walk down the runway at the 2009 Victoria's Secret Show.

  • Smartphone Guide

      Here's a need-to-know guide to nine devices, based on features, price, network and platform.

  • Wines for the Holidays

      Not quite sure what wine to pair with Turkey or Creme Brulee? Our experts do.

FEATURED QUIZZES


Current DateTime: 05:46:22 24 Nov 2009
LinksList Documentid: 33793611
  • A Healthier & Wealthier You

      Take the following quiz and find out how much you know about the impact of obesity on the health of the U.S. economy.

  • The Billionaire BFF's

      Philanthropists. Bridge partners. Hockey players. Which responses are based on facts from Buffett's and Gates' real lives?

  • The Many Myths of Coca-Cola

      Can you tell which statements are true, and which ones are just rumors?


Current DateTime: 05:46:22 24 Nov 2009
LinksList Documentid: 24890560
  • Winterizing Your Portfolio

      If 2009 was the winter of our discontent, will 2010 be a winter wonderland for investors? A lot depends on the recovery—or lack thereof.

  • Investor's Guide to Real Estate

      Some even say the long-awaited recovery is here. Regardless, buyers and sellers alike can profit from our guide.

  • Alternative Investing

      Stocks and bonds? Sure. But it's a big world out there for investors.

powered by digg
Weak Dollar Central to Oil Price Boom
By: Reuters | 26 Sep 2007 | 08:34 AM ET
Text Size

The weak dollar's leading role in oil's ascent to record highs is partly due to a tide of financial flows into commodity investments but also reflects a shift in the greenback's relationship with crude.

Haraz N. Ghanbari / AP

The dollar has traditionally influenced the price of oil and other commodities, including gold and base metals, which are mostly priced in the currency and usually move to compensate for changes in the its value.

So the steep fall in the dollar to record lows against the euro, for example, has helped drive oil to a record of $83.90 a barrel, reached on Sept. 20.

"I'm certainly in the camp of dollar weakness driving crude strength," said Anatol Feygin, head of global commodity strategy at Bank of America.

"With growing OECD inventories, revised lower demand, increased OPEC production and a relatively mild hurricane season, the dollar seems to be much more the issue."

That, analysts say, is because one aspect of its longstanding relationship with oil is changing.

In the past, dollars earned by oil producers flowed into U.S. dollar assets or investments.

The Gulf countries are thought to hold around $3.5 trillion in total dollar reserves, according to Lehman Brothers research.

But investors say the proceeds from the current oil boom -- petrodollars -- have not gone to support the U.S. currency.

"The petrodollars which historically got invested back in the U.S. in dollar-denominated investments now have more options back home or in emerging markets or the euro," said Badung Tariono, who manages an energy fund for ABN AMRO.

"The relative stability of the euro and good opportunities in the rest of the world play a large part as well," he said. The Qatari-backed investment fund Delta Two, for example, is in talks to buy British food retailer J Sainsbury for about 10.6 billion pounds ($21.34 billion).

The Quatar Investment Authority is vying with Borse Dubai and Nasdaq to buy Nordic exchange OMX.

Oil Prices Could Rise Further

"After a generation on the sidelines, the dollar has re-emerged as an upside risk to oil prices," Lehman Brothers said in a research note.

An influx of hedge funds, banks and other financial institutions into the commodity markets in the past few years has also had an impact on oil/dollar moves, analysts say.

"You have more financial players today that are trading oil and commodities and they will play more of those micro-relationships," said Olivier Jakob of oil consultancy Petromatrix.

"If you are bearish the dollar you can sell the dollar index or buy oil and gold or commodities to diversify your portfolio," he said.

The dollar index, a tradeable instrument which tracks its move versus a basket of six currencies, is close to record lows.

Commodities have moved into the spotlight as an asset class because of a price boom but also because they behave differently from stocks and bonds and so offer diversification.

Long-only money invested in commodities indexes, for example, reached $120 billion by the second quarter of 2007, a 50 percent increase on the same point in 2006, according to statistics from AIG Financial Products.

Turbulence in equity and debt markets caused by banks drawing in their horns because of bad loans in the U.S. mortgage sector has played a part in attracting money into oil.

"Crude oil has benefited from funds diverted from elsewhere during the recent financial market uncertainty," Helen Henton, head of commodity research at Standard Chartered, wrote in a research note.

Copyright 2009 Reuters. Click for restrictions.
Tools:
Print EmailAdd This share icon
  • digg share

CNBC HIGHLIGHTS

  • Remember when auto shows were major events where new models could generate buzz?
  • Swine Flu Needle
  • CNBC’s Mike Huckman visits a cutting-edge plant to see how the flu vaccine of the future is being made.
  • People who bottle up their anger at work are up to five times more likely to suffer a heart attack, a study found.
  • Playboy Logo
  • Playboy will outsource its publishing operations in a bid to become profitable again.
  • A new McDonald's in Manhattan is the nation's first to sport a sleek, chic interior imported from stores in London and Paris.
  • For nearly three decades, these on-call experts have been dishing advice on how to – and not to – cook turkey.
ADD COMMENTS
Remaining characters


Current DateTime: 03:14:50 24 Nov 2009
LinksList Documentid: 29778428

Current DateTime: 12:00:47 24 Nov 2009
LinksList Documentid: 29779196

Current DateTime: 04:59:27 24 Nov 2009
LinksList Documentid: 29779199

Current DateTime: 12:00:49 24 Nov 2009
LinksList Documentid: 29779198
  Data is a real-time snapshot  *Data is delayed at least 15 minutes
Global Business and Financial News, Stock Quotes, and Market Data and Analysis

© 2009 CNBC, Inc.  All Rights Reserved.
A Division of NBC Universal
Thomson ReutersThomson Reuters