Oil Shoots Higher on U.S. Announcement

By John Lee
Tuesday, Jan 23, 2007
U.S. 10-year Treasury bond prices fell today, after an $8 billion auction of 20-year inflation-protected bonds sold on high demand. Bond prices have been range-bound over the past week of trading, but today, prices pushed closer to 2-month lows. The U.S. economy has been able to produce a string of turn-around positive-growth reports, which have sent bond prices lower since the beginning of December. Prices initially shot higher last June when the Fed initiated a rate-pause to deal with a struggling housing market and slowing growth. Prices rose steadily through the second half of 2006, on continued weak reports. Since December, though, prices have been pushing lower on positive housing, manufacturing, labor and confidence reports. Bond prices tend to move lower during periods of economic strength, and higher during weakness. Investors should remain focused on key housing and manufacturing reports for more yield-related information.

The euro moved to record highs against the yen, and moved higher against the dollar, after multiple reports were released today in Europe which point to a growing economy. Consumer spending and industrial reports both pointed to accelerating growth, keeping the door open for future rate hikes. Investors speculated that the ECB would be forced to lift rates by June to deal with inflationary and growth pressures. The yen has been in major trouble lately on the global market, with Japan remaining unable to produce any sort of positive report. The U.S. is pushing back against lows on a string of positive-growth reports. The international currency market favors currencies backed by growing, inflationary economies with a need to raise interest rates, which puts the euro in the best light out of the major currencies.

Crude oil rose over 4% to close at $54.96 a barrel today, after the U.S. Department of Energy announced plans to double its strategic oil reserve over the next 2 decades. With the U.S. buying up such a large share of the global market, shares shot higher today, after already being boosted by a cold snap across the northern U.S. Cold weather usually equates to higher prices, but the U.S. announcement helped to send prices even higher today. Natural gas prices rose nearly 4% to 1-month highs, as cold weather and continued forecasts signal a spike in energy demand.
Gold futures rose nearly 2%. Gold usually moves inversely to the dollar and with oil, which is exactly what happened today. Investors sought safety in gold in the face of dollar weakness and rising energy prices. Copper prices rose 2% on signs of increased demand from the U.S. and China.

Grain prices rose across the board today. Corn rose 0.6% and soybeans rose nearly 1% on speculation that ethanol and alternative fuel demand will jump in the coming years; traders speculated that President Bush will address the issue of alternative energy resources in the State of the Union speech tonight. Wheat rose just over 3% in today's session.

Economic News
No major U.S. economic news to report today.