Commodities | Crude Oil Prices Fall

Crude Oil Down on Rising Dollar

In what is expected to be the determining factor in ongoing price increases with gold and other commodities, the increase in value of the U.S. dollar resulted in crude oil prices falling to seven-week lows.

The advance of the greenback was the largest jump against the euro in over five months.

Prices for crude oil delivery for Junuary dropped 99 cent or 1.3 percent, to $75.47 a barrel on the NYMEX. That's the lowest numbers since October 14, 2008. Overall crude oil prices for the week fell by 0.8 percent, although they are up by 69 percent so far this year.

There are a couple of assumptions connected to the strengthening of the dollar, and both are far from being a confirmed reality. One is that the economy has in reality turned around; a very dubious and unproven assertion. Second, based upon that assumption, speculators are betting the Federal Reserve will increase interest rates.

Strange that one unproven assumption can then be invested in based upon a phantom reponse by the Federal Reserve to that assumption. Strange indeed.

While some say commodities have been shored up by the weakness of the dollar, that's not the entire story. It is definitely part of the commodity price increase story, but over the long term it's largely irrelevant.

Commodity demand is what will drive the prices of raw materials, food and precious metals going forward, not primarily the value of the dollar, although that will remain a factor.

The real long-term driver of commodity prices will be demand, and that demand will come from Asia primarily. Supply factors of course will also play a major role in commodity prices.

As expected, gold futures fell in conjunction with the dollar strengthening, falling by close to 4 percent to $1,168.50 an ounce on the Comex division of the NYMEX.

For the price of oil, Saudi Oil Minister Ali al-Naimi said they are happy with the price of oil being between $70 and $80, with a target of just under $75 a barrel.

Surprising larger U.S. oil inventories suggest the price of oil will probably fall until that changes, as there is plenty to meet current demand.

Crude Oil Down on Rising Dollar