This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Oil Prices Backpedal on Dollar Rally


NEW YORK ( TheStreet) -- Oil prices were off to a slow start Monday, falling on a dollar rally that's expected to last at least until the middle of the week.

West Texas Intermediate (WTI) light sweet crude oil for December delivery was sliding $1.07 to $92.25 a barrel, and the December Brent crude contract was behind by 79 cents to $109.12.

Oil prices backpedaled into negative territory following last week's rally, after the Japanese government carried out an intervention overnight to sell the yen. The Ministry of Finance's intervention, according to reports, may have involved as much as 7 trillion yen. The record-high yen-dollar levels were really putting a damper on the Japanese export industry, and the devaluation was a much-needed move for the country.

The dollar was jumping 1.2% to $75.94 against a basket of currencies corresponding to top U.S. trading partners, up 2.8% against the yen and up 1.1% against the euro. The euro took a tumble as traders questioned the ability of European leaders to raise the bailout funds required to keep the region's debt crisis in check. The general lack of clarity on the bailout funds as well China's silence on whether it would be helping with this kept traders cautious.

"It's a scary start to Halloween as economic concerns are putting the frighteners on general markets," said Matt Smith, commodity analyst at Schneider Electric's Summit Energy. "Today we see the optimism from last week disappear like a phantom."

PFG Best's senior energy analyst Phil Flynn thinks the near-term dollar strength that's been pressuring oil Monday could last until at least the middle of the week. Oil, priced in dollars, becomes more expensive for buyers to purchase when the currency is rallying.

"With the Japanese spending a bunch of money with the interventions and seeing it's the end of the month, dollar strength should hold until all souls day," said Flynn. Historically, the yen interventions have lasted for at least a few days.

OptionsXpress analyst Michael Zarembski adds that Monday's U.S. dollar rally "may have some staying power" with the help of renewed concerns about the agreements announced at the European summit last week. Right now, the December dollar index is not seeing any major resistance to further upside until the $78 level, and some resistance at $77.

As for December WTI futures, support is still seen near $90, with resistance found at last week's highs of $94.65, he added. Support for the December Brent contract is seen at $107.30, with resistance potentially occurring at $112.80, he continued.

Schork Report analyst Hamza Khan said if concerns about the European bailout funds aren't addressed "it's difficult to call the bottom in WTI," and he would in the near-term look for WTI to trade between the 50-day and 100-day moving averages of $89.61 and $86.04.

Christopher Vecchio, currency analyst at DailyFX, the research arm of online currency trading firm FXCM, said he foresees another boost for the dollar given the potential for another intervention by either the Bank of Japan or Japan's Ministry of Finance. This would, of course, put more pressure on oil.

"There's still significant fire power that one of these two Japanese institutions could use to weaken the yen," he pointed out.

On the other hand, Vecchio also points out that that because Monday's oil price slide wasn't primarily driven by underlying fundamental issues, per se, oil prices could regain some of their footing if concerns about global economic growth remain subdued. This also comes amid signs of a rebound in the Chinese manufacturing sector. Also, the U.S. government's first estimate of third-quarter economic growth came in at 2.5%, compared with growth of 1.3% in the second quarter.

"This week is a very important week in terms of fundamentals," said Vecchio, referring to a spate of key economic releases in the U.S. "It could really sway the markets."

Longer-term, "I think the dollar is going to remain choppy as we head toward the end of the year, prone to bouts of weakness when general optimism increases about the European debt crisis and the U.S. economy, and rallying as a de facto flight to safety when economic concerns bubble up once more," said Smith of Schneider Electric's Summit Energy.

Energy shares were trading in negative territory. EOG Resources (EOG) was tumbling 3.5% to $91.82; Triangle Petroleum (TPLM) was slumping 6.5% to $5.65; Exxon (XOM) was falling 1.4% to $80.35; Apache (APA) was slumping 3.3% to $101.52; Anadarko Petroleum (APC) was losing 3.8% to $80.54; Chesapeake Energy (CHK) was tumbling 3.4% to $28.72; and Kinder Morgan Energy Partners (KMP) was down 0.8% to $75.76.

In separate news, managers at the Hennessy Focus 30 Fund have raised their smaller to mid-cap energy holdings to 13% from 3.3% last year based on companies whose earnings have done well year over year in the last three, six and 12 months. Most of these mid-cap companies have a concentration in the fuel transport business. Holdings now include Tesoro (TSO), World Fuel Services (INT), Sunoco Logistics (SXL), and Oneok Partners (OKS).

-- Written by Andrea Tse in New York.



>To contact the writer of this article, click here: Andrea Tse.

Copyright 2011 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7870 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs