The Funk goes on, U.S treasuries, a peculating Dollar and the decline of crude oil prices.

By

Iroabuchi Onwuka

The funk goes on. Barely six months ago, the world was heralding crisis like no other. The Dollar took its strength to the rest of the world, and there was massive implosion of currencies that pegged its success on the performance of Crude oil. The crude oil prices as at July 2008 had sold at various record prices, going at some point as much $150 a barrel. It was way over priced and it was a question of time that the market understood the consequence. Six month ago, at least on the 31st of December 2008, the Junks were performing at 22% more than the Federal reserve, part of the reason had to do with the Japanese Yen and the Forex, but much of it had to do with sudden nose dive of crude oil price leading to the end of the year. From the lowest fall in over decade, crude oil prices from the beginning of 2009 has gradually moved up. It is possible that the same scenario is gradually appearing after June 2009, and as we approach the September dead zone for crude oil, attention once more is placed on what is happening to US Treasury, the strenght of the dollars and crude oil.

There were other factors that might have deepened the issue of crude oil decline in June. One of which was that the Chinese and their Indian cohort where backing off from much acquisition of crude, an action which at some point spooked the heavy sale of crude oil. Second problem was the money function of the Euro in terms of crude oil prices. That currency is set in such a way as to inversely conform to the performance of US currency. They call it correlation and in the years leading to American strong dollar policy, the weak dollar forced a strengthening of Euro and a peculation of crude oil price, priced in to Forex and bifurcation. Third to this factor was the tilt of U.S fed reserve towards a quarter of a percent in interest rate, a move no one in the history of the United States has found enough reason to do. The position of US federal reserve in terms of interest rate could have only forced a strengthening of the U.S dollar which sent a lasting chill over the rest of oil dependent countries of the world.

The question has always been what the U.S Treasury had to do with short falls in crude oil? The answer is not that complicated on the condition that nothing in the world can be baited against Crude oil than the very U.S dollar. Until fairly recently, much of the world has bought and traded oil with enough eyes on the US dollars, the movement of US currency only tend to rise and fall given the action of the Feds and the US Treasury but in reality it is the attention on done oil that is by far more important than the Treasury, and that attention can have have its day in deflating the strict attention of US currency. It is not that complicated a process, it is more the outcome of the Forex and the telling weight of the world currencies and international valuation than what is happening inside American market. But of course market prices can check and balance out each other and the whole discipline is the necessity of risk management for Porfolio group.

Crude oil had been climbing for sometime cracking @75 a barrel. It is necessary that the price continue upwards for some profits to be possible. If we take into accounts last year's losses, it is needs to understand the inevitability of an upward trend in Crude and oil prices. With 0.25% percent interest rate, and the spend attitude of US Government, the fear of excess liquidity nestle entirely on the rate of inflation and not its deflationary tact. The end game of these seemless derivative and 'hedge' is that crude oil is baited for the shots on any form of inflation. The target for US policy markers is commodity for sure, and that is only ensured by crippling the upward trend of the major bait for common market; the crude oil. If that can only be a lasting indication of a new form of standard, then it should become clear enough that as the year wears on, attempts by the US Treasury to emphasis a strong dollar is all set to discourage the 'irrational exuberance' June - September of crude oil peculation, and to limit the profitability of rangers who go as back as December/January for shorts.

All is set for a rally on crude oil. Those seeking a 'miserly some' should still go on till September. In essence it is still not late in the game to 'enter the dragon' in crude oil but it is better if the money and size of portfolio is little more than average with useful exist strategy after Q3,09.
The interest of Russia in many parts of the world in terms of oil and gas, the excess capacity of oil around the world waiting to disembark and the very strong dollars means that the oil market will tow a natural lead until next very year. In all likelihood still, the Forex and currency market, can still play itself out in terms of capacity. If the Japanese Yen is Strong as we rap up its earning season in August, it will be looking to empty its excess capacity of the dollars, that will briefly ease off the pressure of banking institution. Trading through the Yang might elevate the export potential of Asia but briefly, the movement of world market strangely false on Asian market.