Just when oil seemed poised for an extended price regression, after dipping to $122 Wednesday, a new one day record for futures price gains interrupted the downward momentum. Light sweet crude oil actually slipped a bit off its daily high before closing at $129.79 in New York trade today (June 5). The $5.49 price gain for the day was the single largest one day price rise in Nymex crude contract history.

Retail gas followed the progression of oil by inching within a penny of a $4 per gallon national price average. According to Thursday’s Oil Price Information Service gas price reading, the national average retail price for one gallon of gasoline was $3.989.

In addition to the moves in oil and gas, the dollar dropped sharply against several major currencies Thursday, most notably, the Euro. The Euro closed Thursday’s New York currency trade just above $1.56 in value. This was a nearly three pip climb for the major European currency from the New York open.

The oil and gas hikes and the dollar swoon were all largely attributed to comments from European Central Bank President Jean-Claude Trichet. Trichet indicated an interest rate hike could be in store soon for the ECB. Combined with the recent drop in rates in the US, this inverse relationship in rate movement is anti-dollar. Rate hikes usually increase the relative value of a currency. Rate cuts typically help to lower currency value.

The Euro-dollar strengthening also was suggested to have been the biggest driver of the oil and gas gains. The dollar usually moves inversely with oil because of the US reliance on foreign oil. A drop in dollar value is usually a major contributor to oil spikes as some investors buy commodities such as oil to hedge against inflation, which results from a falling dollar. Additionally, a weak dollar makes oil a more enticing buy for buyers using other foreign currencies. Thus, the Euro-dollar movement directly impacts the perceived near-term future value of oil.

Despite the enthusiastic buying of oil futures in New York, many analysts still believe oil might have topped out for the near term when it cleared $135 per barrel a few weeks ago. Recent reports have indicated demand might be starting to drop at current market prices, a sign that the oil-driven industries might have become exhausted with the super spike in oil over the last year. Prior to today’s sharp climb, oil had been on a gradual decline since topping out on May 22. It had dropped more than $13 from its high before today’s move.

Americans are still trying to meet their transportation needs despite a never ending battle with rising fuel prices. Some resort and common summer travel destinations have anticipated less traffic this summer because of the fuel prices. Many airlines, despite higher fuel costs, have been posting deep cuts in airfares for some latter 2008 flights. This is likely based on less demand from consumers for the high costs of airfare given the ongoing burden of pump prices.

Other economic news brought a collective smile to investors and analysts today. A jobs report showed the unemployment claims are falling, an indication that the job market has not suffered as much as other parts of the economy. Additionally, retail data showed surprisingly strong retail business. Recent data, including an upward first quarter GDP revision have squelched recession chatter in recent weeks. One sour note was another record for home foreclosures, a trend that most housing market analysts expect to continue at least a while longer until the bad credit home owners are moved out.

Market Recap

Stocks were uncertain Wednesday. The Dow dropped 12 points, but the tech-driven NASDAQ gained 22 points. Economic productivity data was solid. On a positive follow up to Tuesday’s comments on inflation, Fed Chief Bernanke said inflation would not be as it was in the 1970s. Markets moved Thursday. The Dow led the way with a 213 point gain. The NASDAQ and S&P followed with 46 and 26 point gains. Oil spiked and gas is closing in on $4 per gallon. Foreclosures set a new record. Positive jobs and retail data are what inspired stock buyers. The dollar dropped sharply against the Euro.

Neil Kokemuller
Thursday, June 4, 2008
9:27 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.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.