A sudden move back up in oil this week has already prompted analysts, speculators and consumers to wonder if the month-long oil and gasoline price slide is over, or if this week’s change is simply a correction to the downward trend. Oil climbed $5 per barrel Thursday (August 21) after concerns heightened about US-Russia relations. Additionally, the dollar fell back a bit against most major currencies, most notably the yen and the Euro. There have also been more concerns about OPEC nations reducing their oil output in the near future.

Light sweet crude oil closed up $5.62 Thursday, to close at $121.18, after climbing above $122 earlier in the New York trading day. The price of a barrel of crude has spiked nearly $10, after its $35 slide that took place between mid-July and mid-August. The sharp gains have caused concern among consumers and businesses that have enjoyed the reduced prices on oil and gasoline. Many have been wondering when the good fortune of the downward trend would come to an end. Several times in the last month oil has risen a few dollars, only to quickly erase those gains. This week’s climb is the most substantial upward move since the price of oil began to drop.

Some analysts are not so quick to say the downward price trend is over, however, as many have called for a return to $100 a barrel before oil bumps into firm price support. The fact that today’s spike was driven significantly by comments out of Russia concerning a US-Poland agreement on an Eastern European missile defense system, suggests more of an even reaction that a resurgence in oil buyers to the market.

Russia is the second largest exporter of the world’s oil, only behind Saudi Arabia. Any hints of political tension between the US and Russia prompts fear of a potential restriction on output from the country.

In spite of the rise in oil, AAA and the Energy Information Administration reported over a one penny drop in the overnight national retail gas price average, to $3.702. This is good news for consumers, but many stations had already increased their prices at the pump by late afternoon Thursday, so it is likely that Friday’s report could show a moderate jump in the national average. Still, the $3.702 is a full ten per cent off record highs that were set on July 17. It would certainly be tough for gas prices to maintain their firm downward price move if the oil increase holds up.

The dollar moved in synch with the jump in oil prices Thursday. As has been the norm for some time, the dollar fell against most major currencies with the oil rise, or perhaps contributing to the oil move. This was especially the case against the Euro. The 15-nation currency gained over $1 in value today and one Euro currently nets $1.488. The dollar has also fallen back against the yen. After climbing over 110 yen late last week, one dollar is now only worth 108.59 yen.

American consumers and businesses that rely heavily on gas and diesel would certainly like to believe the rise in oil is a temporary move. It is certainly possible to think even a sharp rise like the one today could be quickly reversed. The fast move from $100 to $147 oil saw several whipsaw moves where a sharp drop was quickly reversed, keeping the trend moving higher. A strong back slide on Friday might certainly support the notion of a continued downward price trend – good news for money-strapped American travelers and commuters.

Market Recap

The Dow regained some of its losses Wednesday, posting a gain of 68 points. The NASDAQ and S&P were up 4 and 7. Volatility was king of the trade thanks to slow news and rangy trade. Stocks were flat Thursday as investors pondered whether a sharp rise in oil and a fall in the dollar were a sign of a trend ending, or merely a slight correction. The Dow and S&P were both up, 12 and 3 points, respectively. The NASDAQ dropped 8. Oil climbed over $5 largely due to concerns over US-Russia tensions. The dollar slipped back against major currencies, falling to about 108.5 yen and .67 Euros.

Neil Kokemuller
Thursday, August 21, 2008
11:32 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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