Oil prices fell by almost $2 a barrel this evening after the US Federal Reserve said a weak dollar had fuelled inflation in the US. This suggested the Fed is not likely to cut interest rates further this year.

US crude was down $1.84 at $125.92 while London Brent crude fell $1.72 to $126.30.

One of the factors driving investment in commodities this year has been the weakness of the US currency, which encourages the buying of dollar-denominated commodities as a hedge against inflation.

Analysts said there was mounting evidence demand for oil was easing and expectations that Asian economies, which have led growth in fuel consumption, will slash subsidies because they have become too costly.

Indonesia, Sri Lanka and Taiwan have already announced cuts to subsidies, while Malaysia said it would scrap fuel price controls in August in a move that could double pump prices.

That’s RTE Business, today. So, the trend I mentioned yesterday, continues.

And guess what? I’ve said Soros was involved here, and I’m firmly convinced of it now, based on testimony before the Senate. From the AP:

The growth of funds designed to mimic the price of crude oil and other energy futures is reminiscent of a similar craze that precipitated the stock market crash of 1987, billionaire financier George Soros told lawmakers Tuesday.

The surge in popularity of commodity index funds is “intellectually unsound … and distinctly harmful in its economic consequences,” Soros told a Senate hearing. When speculators enter a market mostly on one side — in this case, betting on rising oil futures — it “distorts the otherwise prevailing balance between supply and demand.”

He likened it to the rush to invest in portfolio insurance more than 20 years ago. When those investors tried to exit the market at the same time, stock markets around the world crashed.

While acknowledging he was not an expert on oil markets, Soros said he has spent years studying market “bubbles” that begin with a trend based in reality, but are then followed by some misinterpretation of that data. He sees no imminent crash in oil prices, however, and said a decline in consumption will not occur unless the U.S. and other developed nations’ economies fall into recession.

“That makes it desirable to discourage commodity index trading while it is still inflating the bubble,” Soros said. He has urged regulators to improve market oversight and to place limits on speculative positions.

Well, of COURSE he’s going to call for greater governmental intervention. That said, he knows it’s a bubble. And I’m still firmly convinced his fingerprints are all over it. 

One word to the wise: Short.


Update: This post made Reuters newswire. Thanks.

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