Oil rallying on weak dollar and Chinese data

I guess it is still winter after all. Forecasts are turning colder and heating oil is surging, but it is also getting support from the crude oil. Oil is rallying on a weak dollar and a sense that it is undervalued as compared to some commodities. You can forget the fact the Chinese yuan hit a record high against the dollar last week because today the market seems less concerned about Chinese inflation after last weeks' HSBC China Manufacturing Purchasing Managers Index showed prices in China for factory inputs rose in December at their slowest rate in three months. While analysts caution against making too much of a single survey, the readings could indicate that a series of rate increases and other measures aimed at taming inflation are having some impact. The HSBC purchasing managers index for December fell to 54.4, from 55.3 in November.

The market also seems less than impressed with the latest move by the Chinese to rein in inflation. China moved to ease capital controls on exporters' foreign-currency earnings. The move, according to the Wall Street Journal, is one that over time could ease inflationary pressures and slow growth in China's foreign exchange reserves. This is an expansion of a program that allows Chinese exporters to keep their foreign-currency earnings overseas instead of changing them into yuan.

Another bullish factor cited for crude price increases is the Obama administrations’ response to the Deep Water Horizon disaster. The Wall Street Journal reports in a must read article, "More than two months after the Obama administration lifted its ban on drilling in the deep-water Gulf of Mexico; oil companies are still waiting for approval to drill the first new oil well there. Experts now expect the wait to continue until the second half of 2011, and perhaps into 2012. The administration says it is simply trying to enforce new safety rules adopted in the wake of the April 20 explosion of the Deepwater Horizon drilling rig, which killed 11 workers and set off the worst offshore oil spill in U.S. history. Environmental groups say the administration is right to take its time because the Gulf disaster exposed the risks of offshore drilling.

But the delay is hurting big oil companies such as Chevron Corp. and Royal Dutch Shell PLC, which have billions of dollars in investments tied up in Gulf projects that are on hold and are paying hundreds of thousands of dollars a day for rigs that aren't allowed to drill. Smaller operators such as ATP Oil & Gas Corp., which have less flexibility to focus on projects in other regions, have been even harder hit."

Also start the New Year off right!

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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