When the missiles start to fly and rouge nations test nuclear weapons, it appears that money comes crawling back to the world’s lone super power. A rush back to the safety of the dollar is driving oil lower in the wake of a nuclear test and some missile launches from the axis of evil member in good standing, North Korea. Oh sure, the dollar has not been in favor as much lately due to fears of quantitative easing and record budget deficits that has caused alarm in the global market place but when the missiles start flying it is still the greenback that seems to call the global investors home.
It's quite a change from last couple of weeks when the dollar was looked on as a charity case by some Asian central banks. The Wall Street Journal reported that the decline in the dollar prompted intervention from several Asian Central Banks worried that a weaker dollar could be a further blow to their exports. The Journal says that to combat the dollar’s decline, central banks in South Korea, Thailand, Taiwan, Singapore and India are believed to have sold their currency and bought dollars in recent weeks. Yet when the world is worried about the dangers from some of the worst case scenarios that could develop as rouge nations like North Korea seem increasingly unstable, once again they look to the United States as the safe harbor of the world.
These developments may take some pressure off of OPEC as a break in prices could shield them from criticism as they conspire to withhold supply. OPEC is meeting this week and it is widely expected that they will not change their quota but what will happen to prices if we see demand continue to rise? Bloomberg News reports that Saudi Arabian oil minister Ali al-Naimi said the price of oil will climb to $75 a barrel when demand picks up. Al-Naimi says that, “We’ll get there eventually; the trick is keeping it between $70 and $80. It will be achieved as demand rises and the fundamentals are better than they are now.” To reach that goal, Naimi said he will recommend OPEC members, “stay the course” at their meeting in Vienna on May 28. The group is likely to keep daily output quotas unchanged at 24.845 million barrels at the Vienna gathering, according to a Bloomberg survey. Naimi was also quoted as saying by Al Hayat as saying that global oil stockpiles can currently meet between 61 and 62 days of consumption and, "we want it to be between 52 and 54 days of consumption."
A major pipeline in Nigeria was hit by Nigerian rebels. The Financial Times Reports those Nigerian militants launched their first major strike against the oil industry, blowing up a significant Chevron pipeline. The attack has prompted Africa’s biggest oil industry to brace for more attacks in revenge for the military’s decision to raze a base occupied by one of the Niger delta’s most influential militant leaders.
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or email@example.com .