Dollar’s Decline Makes Oil ‘Too Cheap’ at $80: Chart of the Day
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By Jana Randow
Oct. 22 (Bloomberg) -- Oil is “too cheap” and should rise to $88 a barrel in coming months after the dollar’s decline against the euro, a DekaBank study suggests.
The CHART OF THE DAY shows how oil prices, in yellow, have moved in relation to the euro-dollar exchange rate, in blue. DekaBank says that at an exchange rate of $1.50, oil should cost $88 a barrel. The euro rose to $1.50 yesterday, a 14-month high, while oil cost $80 per barrel, the most in 12 months.
“Oil is too cheap at the moment,” said Christian Melzer, a Frankfurt-based foreign exchange analyst at DekaBank, which manages more than $240 billion in assets. The study shows that over the last 10 years “oil prices have adjusted to changes in the euro-dollar exchange rate,” he said.
The euro has gained 20 percent against the dollar since mid-February. In the same period, the oil price has surged 125 percent. Crude peaked at $147 a barrel in July 2008 before collapsing to $34 on Feb. 12.
A euro-dollar rate of $1.55 would push oil to $96 a barrel, the DekaBank study shows. A rate of $1.40 would imply a crude price of $74, according to the study.
BLK Price at posting:
34.3¢ Sentiment: Buy Disclosure: Held
