It may be too soon to exit oil-dollar bet
The long oil/short dollar bet may be off the table for now as energy prices ease and the U.S. currency rises, but inflation and inherent risks in commodities supply could bring this popular trade back.
For over a year, one of the main themes in currency and commodity markets has been to short — or sell — the dollar as U.S. economic health looked suspect, and go long — or buy — oil as an insurance against inflation and uncertainties in raw materials supply.
That strategy was one of the main factors that helped push the dollar to historic lows while crude prices doubled from a year ago to record highs of nearly $150 a barrel in July.
The play now is reversing, with the American economy apparently on surer footing compared with Europe and Asia and demand for energy slipping.
The U.S. dollar rose more than 6 percent versus the euro in the past month after it touched a record low of 1.6038 per euro in July, according to Reuters data.
“Oil’s gone up too much because people were buying it for all the wrong reasons like not wanting to hold on to the dollar or worrying about putting money in the bank,” said Phil Flynn, vice-president and senior market analyst at Alaron Trading, a commodities brokerage in Chicago.
“Barring a major disaster, we expect oil prices could go below $100 maybe by the end of this year, or even faster, as it’s obvious that the trend for demand is falling off pretty dramatically,” Flynn said.
On the New York Mercantile Exchange, crude was hovering around $118 a barrel on Friday as a powerful storm was poised to enter the Gulf of Mexico, raising concerns about the impact it could have on U.S payday loan. offshore oil and gas output.
Filed under: management, online by TheDoor