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The Dollar? Oil Inventories Are Real Key Today

I'm bracing myself for another volatile session in the oil pits. Nymex crude has been testing $109 a barrel this morning -- after a more than $3 swing yesterday from the early morning high near $110, when the dollar fell to an all-time low against the euro, to under $107, after the Fed's move to improve liquidity in the financial markets caused the dollar to rebound.

I'll be watching the dollar again today, as continued weakness could keep oil prices inching closer to $110, but my main focus this morning will be on another important gauge: U.S. oil inventories.

Oil prices have climbed nearly 9 percent since last week, since the Energy Information Administration reported crude inventories had declined by 3 million barrels in the prior week. That was a BIG surprise to this market, which was expected a build. The larger-than-expected drawdown in distillate fuel supplies also helped send heating oil prices to new all-time highs.

Analysts surveyed by Platts, Reuters and Dow Jones see oil stockpiles rising this week by an average of 1.6-1.7 million barrels, while distillates have fallen by about 2 million barrels.

Views are mixed about whether gasoline supplies have increased or decreased slightly in the past week. But even with gasoline inventories at their highest level since 1994, pump prices are powering ever higher. The national average for regular unleaded gasoline is at a record at $3.25/gallon, while diesel is just 12 cents away from the psychologically significant $4 mark.

Oil price action is often dramatic at right after the 10:30am ET release on Wednesdays -- and today could see even more violent swings, with the high level of open interest in energy futures contracts.

If we see a bigger-than-expected build in oil supplies, that could give support to the bears: they point to seasonally weaker demand for oil in the second quarter, and to the economic woes of the U.S. and other developed economies as reasons for a correction.

Perhaps.

But given that oil prices have closed at all-time new records in 10 of the past 11 sessions, it appears nothing can keep the bulls down at the moment.

Questions? Comments? energysource@cnbc.com