Despite Lower Oil Inventories, Dollar Surges

So far it has been quite a good week for the US dollar when it comes to US economic figures. Wednesday’s release of July US durable goods orders came out better than market consensus, jumping to 1.3%, following an unrevised 1.3% increase in June, and versus an expected increase of just 0.1%. A 28% increase in civilian aircraft orders contributed to the jump in transportation orders which saw the largest increase (3.1%) since February. Although the US dollar went through the Asian and European trading session on a weaker footing, it regained some bullish vigor post durable goods, most notably against the British pound and the Japanese yen.

Oil Shows Muted Response

Crude oil is now rising for the third straight day on concerns about the tropical storm Gustav creating havoc in the Gulf of Mexico and on the smaller-than-expected oil inventory. The US dollar’s gains at the moment are being restrained by the elevated oil price which lingers above $118 at the time of writing.

Today’s report from the US Department of Energy showed that crude inventories are down by 177,000 barrels and distillates are up by 57,000 barrels, both less than the respective forecast for a 1 million-barrel rise in crude stocks and a 500,000 barrel increase in distillates. Also hogging headlines is Gustav which is forecast to pick up hurricane-like speed as it approaches the oil platforms and rigs off Louisiana and Texas, where US refinery operations are concentrated.

Fed’s Lockhart Welcomes Firm Dollar

Today we got another signal from the Fed that interest rates are likely to stay unchanged at 2% for the rest of the year. Atlanta Fed President Dennis Lockhart said today that he is comfortable with current rate stance as it is “consistent with an easing in overall inflation given the dynamics of the economy.”

He said that “both headline and core inflation will diminish over the rest of 2008 and into next year as the temporary effects of energy and food price increases abate.” He is pleased that lower energy prices and a stabilizing US dollar are helping to stem rising inflation - for the time being. Another point goes to US bulls.

In forex trading, EUR/USD’s nearest resistance now lies around 1.4780-1.4800 while USD/CHF has to overcome 1.1010 and 1.1040 before it can retest Tuesday’s high of 1.1090. GBP/USD fell to another 2-year low today, and actions around 1.8280 must be closely watched. If stops below this level are tripped, GBP bears may drag it down towards 1.8200.

Economic Calendar For Thursday:

German CPI

Eurozone consumer confidence 0900 GMT

US GDP (preliminary), core PCE, initial jobless claims 1230 GMT

UK GfK consumer confidence 2301 GMT

Japan national CPI 2330 GMT

Comments

[User 30121:]

Any USD surge is strictly TEMPORARY, and SHORT-LIVED. The dollar is destined for the junk heap. We are looking at $200-300 oil VERY soon. That, unfortunately, is CHEAP! How, you ask?

1. $150 oil translates to about $0.22 cents per cup. What a bargain, right? Certainly. You can't get a decent cup of coffee for FIVE TIMES that!

2. Most of the world HAS BEEN paying the equivalent of $250-300 oil for years (approx $8 per gallon). Its not new.

3. Saudi Arabia is busting at the seams just trying to MEET their daily output of 9.5 million bbls daily. That figure has dropped 1 MILLION bbls daily since 2006. Without new discoveries, production is not likely to increase.

Forget the dollar....its withering away....try gold and silver.

2008 Aug 28 03:33 PM

[Danny/The D...:]

Like you, I believe the increasing cost of extracting the remaining reserves of oil from old producing fields, will drive the cost per barrel upward to $200+ /barrel.

That "goal" will be slower to reach now that the huge Bakken reserve is (Montana, N Dakota, Manitoba & Saskatchewan) is now online.

2008 Aug 30 03:34 PM

[silver-bullet:]

The Bakken reserves is not 'easy' oil. It is expensive to get to, even with parallel drilling technoligies. I agree with User 30121.

Since I can't stock pile hundreds of barrels of oil in my back yard, I decided to buy a safe and stock pile as much precious metals as I can.

2008 Sep 01 09:35 PM