Oil Price Rises to Highest Level in 2009

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". . .the short-term direction of the oil price will be dictated by the dollar's strength (or lack thereof). . ."

It could be said that crude oil genuinely lubricates the wheels of the global economy; it being essential to many sectors from plastics to transportation and energy generation when processed. The price tends to rise with increasing demand and when the dollar is weak, such as now. The converse is also true.

The price for crude in the U.S. closed at $79.61 in New York trading; Brent crude closed in London at $77.77. The rally in oil prices was (pardon the pun) fuelled by encouraging U.S. bank Q3 earning statements last week and a degree of optimism for the prospects of a recovery in the global economy, which would stimulate the demand side of the equation.

For those who speculate on oil futures, analysts suggest the short-term direction of the oil price will be dictated by the dollar's strength (or lack thereof) and forthcoming corporate results. The dollar has continued to weaken against the Euro, and is close to a 14-month low against the currency.

Oil stockpiles for diesel and heating oil are very high currently (weakening the demand side as the northern hemisphere heads into winter), and it may take time for industrial demand to kick in even if the recovery is really over.

The influential Ernst and Young Item Club has suggested that it might be premature to say that the UK recession is over. Although there are some areas of optimism, such as amongst small businesses 75% of whom predict an upturn in 2010 (though an upturn is not difficult to achieve on the back of the worst year in living memory), and a buoyant stock market, they conclude that global recovery signs are mixed and data from hard output (production) has yet to confirm that the "feel good" factor is based on solid fundamentals.

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