Crude-Oil Tail Wags the U.S.-Dollar Dog

Crude oil futures prices on the New York Mercantile Exchange this week notched another fresh all-time high, with the May contract reaching $112.21 a barrel at mid-week, following a surprisingly bullish drawdown of U.S. crude oil stocks as reported by the U.S. Department of Energy on Wednesday morning. In the meantime, the value of the U.S. dollar against the other major currencies of the world continues to languish near record or multi-year lows.

The combination of record-high crude oil prices and a historically weak greenback has proven a bullish tonic for most raw-commodity futures-market bulls in recent months. Crude oil has been a major upside leader that has pulled other commodity futures prices to record or multi-year highs.

A couple of events on Wednesday of this week showed just how strong of an influence crude oil prices and the value of the U.S. dollar have over other commodity futures markets.

On Wednesday morning, when the Department of Energy issued its weekly liquid-energy stock report that showed a surprising drawdown in stockpiles, when traders were expecting a build, the crude oil market immediately rallied around $2 a barrel to a fresh all-time high.

At the same time, U.S. dollar index futures -- a basket of major currencies weighted against the dollar and an excellent proxy for the health of the U.S. currency -- dropped sharply. The fact that this occurred in the immediate aftermath of a weekly energy stocks report showed that the tail was wagging the dog, for at least a moment.

The second significant event occurred in the grain futures market Wednesday. A U.S. Department of Agriculture supply-and-demand report issued early in the morning was deemed by soybean futures traders to favor the bearish camp. Yet the soybean futures market opened strongly higher, and at one point during the trading session, Wednesday prices moved up their permissible daily trading limit.

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At time of publication, Wyckoff had no positions in the stocks mentioned, although positions may change at any time.

Jim Wyckoff is a senior market analyst for TradingEducation.com a free educational Web site. In addition, Wyckoff writes a blog offering current market commentaries every morning on TraderBlogs.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Wyckoff appreciates your feedback; click here to send him an email.