"The Euro is strong against the Dollar, which is once again providing an impetus for a push higher…there will be a lot of commodity buying, especially oil," said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut on Tuesday as oil prices and the value of the Euro against the Dollar both reached record highs.
Crude oil for May delivery rose 1.7 percent to $119.46 a barrel at 11:49 a.m. Eastern Standard Time on the New York Mercantile Exchange. Futures contracts bid the price at one point to a record high of $119.74. Oil prices have risen 87% in the past year.
The oil futures market first opened in 1983 and has never been this high before.
Oil prices continue there steady rise because of several factors.
Predominately, the European Central Bank today said that it will not cut interest rates, which led to the spike in the value of the Euro vs. the Dollar. With oil priced in Dollars, and interest rates in the U.S. sharply cut in the last few months in attempts to stimulate the U.S. economy rocked by the bursting of the housing market bubble, the price of oil has risen on the European Central Bank’s news. The Dollar Index on Tuesday fell 0.4% to 71.390.
Furthermore, inflation concerns in the United States, which lead to global inflation concerns these days, have sparked investors’ interest in the buying of commodities as an inflation hedge.
Investors’ general favorite commodity? Oil.
Commodities in general have been rising in price due to increasing global demand coupled with the falling of the Dollar. U.S. government demands for vastly increased production of alternative fuels have also led to sharp price spikes in corn, soybeans, and wheat.
Oil futures investors bid up the price of oil yet more on Tuesday in the wake of the news of Royal Dutch Shell’s declaration of "force majeur" in the highly volatile and troubled nation of Nigeria, which is the world’s eighth largest national producer of oil. Pipelines continue to be attacked by militants who demand that Niger’s oil revenues be distributed among the populace instead of taken in by the government.
Oil futures opened the day at $117.80 a barrel of light sweet crude, which is needed for supplying the summer driving demand.
Gasoline prices in the United States reached a record high national average of $3.51 a gallon for regular, sparking many Americans to unthinkingly demand that the federal government do something to curb prices. Republican Presidential hopeful John McCain has called for a temporary suspension of federal gasoline taxes during most of the Summer.
Federal gasoline taxes push up the cost of a gallon of gas much more than the profit margins priced in by the oil and gas companies do.
In a research note, market analyst Edward Meir of MF Global wrote, "For the moment, there does not seem to be anything stopping the price juggernaut. Markets are seizing on bullish news while ignoring anything bearish coming their way."