When will crude stabilize?
International concern mounted as world oil prices edged closer to $120 a barrel. Analysts said a weakening US dollar, supply worries in Nigeria and the OPEC cartel’s reluctance to increase output have all contributed to the price surge. A weakening US dollar has spurred oil demand because dollar-priced oil becomes cheaper for buyers holding stronger foreign currencies.
Saudi Arabia is the biggest producer in the Organisation of the Petroleum Exporting Countries (OPEC), which on Tuesday said that it plans to increase its production capacity by five million barrels per day (bpd) by 2012. OPEC’s secretary general Abdalla Salem El-Badri said OPEC aimed to boost production capacity by nine million bpd by 2020. Current OPEC output stands at about 32 million bpd.
Many analysts expect the Federal Reserve to cut interest rates further this year to try to shore up the ailing U.S. economy, a move that would likely further weaken the dollar.
It seems we have fallen into a never ending cycle, Fed keep cutting rate to adjust for the financial crisis fiasco. This in turn causes dollar to fall which in turn boosts demand for dollar priced oil which becomes costlier due to High demand-low supply factor and High price of oil further causes inflation and worsens the financial condition and then the circle starts again.