Oil and other commodity prices hit by stronger dollar

The day after Ben Bernanke came out with a statement that confirmed rumors of end to lower interest rates, commodity prices continued to fall. With oil trading below $124 and other commodities trading lower, the rally in commodities could be in for a pause or even a pullback. Weak dollar having been given as a major reason for high commodity prices, the increased strength in the dollar might be about to change the bullish trend in commodities.

Growing concern about inflation and increased unrest, has prompted governments to react to higher prices. The US senate is looking into speculative trading and other governments are looking at ways to counter the high prices. As a result of these concerns, the Commodity Futures Trading Commission (CFTC) has said that they will grant fewer exemptions to speculative position limits related to agricultural index trading and provide more detail on trader holdings.

One of the reasons that higher prices have not been felt by the population, is the subsidized economy of many Asian countries. The prolonged high prices have on the other hand begun to weigh heavily on these economies and now some of the Asian countries are increasing prices, with India increasing oil prices of about 10%. If demand from Indonesia, Taiwan, Thailand, Malaysia and India fell by 5%, it would lower the daily crude use by more than 310,000 barrels which equals the output of two North Sea oil fields. With these countries lowering their subsidizes, this could easily become a reality. With US supply data expected to show increased stock, further decline in prices could be expected.