Oil Rises Above $80 Mark, Dollar Continues Down Slippery Slope

Settling above the $80 mark on the New York Mercantile Exchange, the price of crude oil has reached a level that makes many question just how stable the US economy is and whether the dollar is still to blame.  Also, the price of natural gas dropped 21 cents from yesterday's closing price of $4.935 per thousand cubic feet on the NYMEX Wednesday.

Light, sweet crude oil traded at $80.72 a barrel on Wednesday, increasing by $1.12 from yesterday's closing price. Oil prices rose due to the weakening dollar and reports pointing to a drop in U.S. crude supplies.

Oil Comfortable at $80, Dollar Under Siege

The markets are being closely watched as the Federal Reserve held a meeting to discuss interest rates, which are probably being left unchanged near zero.

"The dollar cannot regain strength because the Federal Reserves are going to continue to have ultra low interest rates, which encourages people to sell the dollar and buy other assets," said Phil Flynn, vice president in charge of research for PFG Best in Chicago. "The Feds are continuing to put pressure on the dollar, and right now the dollar is under siege because of the federal policy and that will continue until things change."

While the dollar continues to weaken, gold resumed as a hot commodity due to the International Monetary Fund's 200-tonne sale to India's central bank earlier in the week. "People are buying gold because they are worried about the US economy, the European economy; buying gold is a very strong trend right now," says Flynn. "However, I would caution this trend because it is more dangerous to be short of gold than any other commodity."

Natural Gas Falls Below $5 Threshold

With the price of natural gas closing at $4.725 per thousand cubic feet on the NYMEX Wednesday, the price dropped 21 cents from yesterday's high of $4.935.

The Energy Information Administration reported that oil and gasoline supplies dropped, making many analysts question why since most believed that the amount of unused crude in storage would grow.

"We have seen rig counts go up, offshore production go up and it is so easy for producers to produce natural gas, but right now there isn't much of a demand for energy," Flynn stated. "I think in the future we will see production cut backs, but the question is how dramatic and quickly will the cut backs be? A lot will depend on how the market fairs this week and next."