Oil Prices Climb in Face of Stronger Dollar

After a long decline that ended in February, oil prices are starting to climb back up despite the fact that the dollar is at its strongest point in 2 years.

(click to expand)

The United States Oil Fund (USO), a $3 billion ETF that tracks spot oil prices, hit a low of $22.74 on February 18 before bouncing back to close at $27.99 on March 6.  Oil prices jumped on news that China plans to increase imports of commodities as part of its overall stimulus package.  In addition, an unexpected drop in U.S. oil inventories for the week ending February 27 also helped drive prices higher.

Oil bears point out that the supply of oil will remain high because there are lots of multibillion-dollar projects in progress that can’t be stopped and producers will pay for them by increasing production.  Other bears point to continued low demand and a rising dollar as factors in keeping a lid on oil prices.

Over the same period, the dollar has continued its uptrend.  Since the beginning of the year, the dollar is up 9.4% against the euro and up 8.1% against the yen.  Last week, the outlook for the dollar further improved as the ECB and Bank of England cut interest rates.

For more, see the ETF Directory for a complete listing of Commodity ETFs and see the special report – Investing in Oil with ETFs.