Oil Supported By QE3 Probability

With most investors believing it's inevitable that Ben Bernanke will institute another round of quantitative easing, it has helped support oil prices which otherwise would probably drop much further than the support it has found in the mid $80 a barrel range.

That has also helped shore up the price of other commodities as well, which would have otherwise plummeted even worse than they have been.

Add to that the enormous upward move of the U.S. dollar, weakening China and Brazil, along with devastated Europe, and you see how the price of commodities, outside of agriculture, should be dropping much more than they have.

But the bears have to be careful after learning from the past that Ben Bernanke's propensity to print money is insatiable, and it's only a matter of when he'll do it again, not if he's going to do it.

That's the great uncertainty in the market which keeps support under oil and other commodity prices. And that's even when everyone knows over the long haul more stimulus won't help the economy at all, but it will give a short-term psychological boost, which will push up the prices of many commodities.

Another support for commodities is in regard to the decision by European leaders to commit to taking further steps to shore up the system. While there are still no particulars there, it remains in the back of the mind of bears who would love to short the market even more, but could easily get hit hard if the Federal Reserve stimulates and Europe clarifies what steps it plans on taking going forward. Those elements, more than anything else, are keeping the price of oil from plummeting to below $50 a barrel at this time.

Unwillingness to bet against the probability of another round of quantitative easing is what's standing between the free fall of the price of most commodities.

That's why with oil the price will probably remain in the $80s until more clarity is revealed.

The next important moment is when Ben Bernanke addresses Congress next week about the state of the economy. Traders and investors will listen closely for any clue on which way things may go in the short term.

Oil Prices Today Hit Two-year High, Nigerian Rig Attacked

With the announcement the Federal Reserve was going to print another $600 billion in U.S. dollars to buy up government debt in an attempt to stimulate the economy, oil prices, and other commodities, have been pushed up as the value of the U.S. dollar continues to plummet.

That means the industry is under tension, and when anything is added to the mix, oil prices can spike, like they have today with the reported attack on a Nigerian oil rig.

The main contract for light sweet crude for December delivery in New York surged to 87.49 a barrel, reaching its highest level since the latter part of 2008.

In Nigeria an oil rig in the Okoro field was attacked, with five crew members thought to be taken hostage. Usually that results in a ransom demand being made and paid to criminal gangs operating in the region.

So with the new implementation of quantitative easing, every time something major happens affecting oil prices, one way or the other we'll see swings in price in response to them.

Going forward, most of that will probably be on the upside for oil, as well as a number of other commodities.

Oil Prices Today Drop After Hitting 5-month High

After hitting a 5-month high above $84 a barrel, oil prices today dropped as investors looked at supply and demand rather than only the collapsing U.S. dollar.

That's not to say the weakening U.S. dollar isn't a factor, just that it's not the sole factor in oil price movements. No matter how weak the dollar is, consumers still must buy gas and oil in order to push prices up to high levels.

This is how it's going to go for some time into the future, not just for oil prices, but for commodity prices in general. Those moved by supply and demand, coupled with the drop in value of the U.S. dollar will do very well for some time.

After reaching $84.43 today, crude oil pulled back for November delivery to below $83. As of 1431 GMT, it stood at $82.83.

The push and pull of supply and demand versus the falling U.S. dollar will have oil and commodities performing in this manner going forward, as the market looks for a balance between the two.

In the short term at least, it is expected that oil prices will pull back more.

JPMorgan (NYSE:JPM) Sees $90 Oil by End of 2010

JPMorgan (NYSE:JPM) said the price of oil by the end of 2010 should reach close to $90 a barrel.

Data perceived as positive for the economy is partly driving the outlook, but probably the weak U.S. dollar is the main catalyst, as the commitment by the Federal Reserve to interfere in the economy if it remains weak a a major driver as well, which is part of the loss of value of the dollar.

One possible thing that could derail the higher price is if consumers continue to hold back on traveling and spending, which could cause demand to go down and inventories to go up, which could push oil prices down to lower levels than expected.

For Friday, in afternoon trade West Texas Intermediate crude for November contracts was up to $76.35 a barrel, gaining $1.17 on the New York Mercantile Exchange.