Economic Conditions Halt Oil Prices

An abundance of positive economic data during the week have helped the strength of the dollar, subsequently stalling the rally for oil prices.

Benchmark crude oil prices for April delivery were at $81.71 Friday (March 19) morning. This is off 49 cents from Thursday’s settle price of $82.20 on the New York Mercantile Exchange. Thursday’s settle price was 73 cents below Wednesday’s.

So what is behind this pullback in prices? Partly to a simple correction given that oil prices are up near $14 from $69 about a month ago. Speculator’s expected increased demand in the coming months from businesses and consumers helped push the gains in price.

A strong US dollar can also be helping keep oil prices from rising this week. Usually, a firm dollar provides lower commodities prices. However, oil has moved in unity with equities and economic conditions over the last year, sometimes ignoring dollar improvements.

Analysts have been coming out with the theory that speculators have priced in much of the anticipation for increased demand of 2010. The implication is increased demand may not really drive oil prices much further past their current point.

The dollar appears to be going into a strong period as economic sentiment improves and it becomes more likely that the Fed will increase interest rates. Higher yields would make the dollar more appealing to traders for value.

Of course, traders have also been factoring this potential in currency trade. Recent comments following the Central Bank meeting which ended with rates being held at low to zero suggest it could be a while before rates are moved. This has kept the dollar speculation from really taking off.

Thus, some would say their are further gains for the dollar amid growing rate possibilities compared to oil prices which may have factored in increased demand in the market.

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