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Oil Prices Jump Higher on EU Warning

Posted June 5, 2008

“It’s not excluded that, after having carefully examined the situation, that we could decide to move our rates for a small amount at our next meeting. I didn’t say it’s certain. I said it’s possible.” — European Central Bank President Jean-Claude Trichet

by Stephanie Grimmett

Baltimore – (TFN): You can blame a frenchman named Trichet for a rebound in oil prices today.

European Central Bank President Jean-Claude Trichet just announced that his bank may raise interest rates next month. And the next thing you know, oil jumps more than $5 per barrel.

The logic is simple enough: If Trichet raises interest rates in the EU, it strengthens the euro, which will devalue the dollar even more. And, voila, all of that effort by the Fed to stablize the price of oil goes out the window… or down the oil well.

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The dollar rose and oil prices fell earlier this week, when Bernanke began talking about the possibility of instituting the “strong dollar policy” Secretary of the Treasury Henry Paulson’s been advocating since January. But with Trichet’s warning, we can kiss that trend goodbye.

Crude oil for July delivery rose $5.60 to $127.90, as of the closing bell at the New York Merchantile Exchange. And that’s only when Trichet says it’s possible the ECB could raise rates. Let’s hope the ECB decides that a little inflation ain’t that bad afterall.

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Posted by Stephanie Grimmett · Filed Under Oil and Energy 

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