Investors pushed oil back up over $100 a barrel Monday, reversing some of last week's plunge.
Oil's 15 percent drop last week was its steepest in two and a half years. Now, investors who believe oil fell too far, too fast are sensing a bargain.
"Nothing fundamental happened between Friday and Monday to justify a $3 jump," said Stephen Schork, publisher of the energy industry newsletter The Schork Report. "This just shows the power of speculators in this market."
In midday trading on the New York Mercantile Exchange, benchmark crude for June delivery was up $3.85, or 4 percent, to $101.02 a barrel.
Over the long term analysts expect oil and other commodities to get more expensive as the recovering U.S. economy and the growing economies of Asia increase demand for energy and raw materials.
"The fundamental backdrop in the market remains entirely unaltered, with global oil demand still showing continued strength," Barclays Capital said in a report. "The general (oil price) trend from here should be higher, rather than lower."
Monday's jump in oil prices, though, may be what analysts refer to as a "dead cat bounce." That's a temporary rise in price that interrupts a generally downward trend.
Last week oil and other commodities fell dramatically because of a major shift in the outlook for the U.S. dollar and other foreign currencies, especially the euro.
Thursday the European Central Bank signaled that the bank might not raise interest rates in June as investors had expected, leading to a sell-off in the euro. Then, Friday, a magazine report suggested Greece might abandon the euro.
That sent investors back to the dollar, and away from oil. "The sea change last week was the increase in the value of the dollar and the decrease of the euro," said Phil Flynn, analyst at PFG Best in Chicago.
When the dollar falls, investors tend to buy commodities hoping they will gain value as the dollar weakens. When the dollar rises, investors tend to sell their commodities.
Monday, though, oil prices jumped even though the dollar remained flat, suggesting investors felt that oil had simply fallen too far.
Analysts say financial news from Greece and Europe will likely keep currency markets volatile. Commodity markets should follow.
European Union officials suggested over the weekend they may provide Greece more help, easing investor fears. But Monday the rating agency Standard & Poor's downgraded Greece's debt further into junk status.
Some analysts believe that the price of oil will continue to decline because high gasoline prices are cutting into demand for oil. Also, the U.S. economy is not growing as fast as once thought. U.S. gross domestic product growth slowed to 1.8 percent in the first quarter.
"We expect oil to fall further as the global economy slows, the dollar continues to rebound, and the risk premium due to unrest in the Middle East eventually fades," Capital Economics said in a report.
Last week's falling oil prices are beginning to benefit U.S. drivers. Gasoline prices fell overnight to a national average of $3.96 per gallon.
In London, Brent crude for June delivery was up $4.72, or 4.3 percent, to $113.81 a barrel on the ICE Futures exchange.
In other Nymex trading in June contracts, heating oil rose 8.5 cents to $2.9309 a gallon and wholesale gasoline added 16.40 cents to $3.2541 a gallon. Natural gas futures fell 2.3 cents at $4.274 per 1,000 cubic
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