TO LITTLE TO RATE

Oil prices backed off the three month highs achieved over the past several days as skepticism crept back into market participants' psyches at current prices, particularly with gasoline stocks rising at this time of year.  Oil’s relative strength rose to a four-month high, a sign that a market is overbought and ready to drop.

Yesterday, crude in New York rose 1.5% to $82.55,the highest settlement since May 4, after the euro advanced to its best level in three months. According to ADP private employment rose more than expected and has helped buoy oil prices. as a harbinger of US payrolls, to be reported Friday, it suggests that with employment growing, a positive effect on energy demand growth may be subsequently anticipated.

Clearly dollar erosion has been a major impetus in the appreciation of crude, as sentiment towards global economic prospects improves. Still, a currency's value is a measure of its standing with investors and for the US is not an altogether good sign. Additionally, the euro is probably overvalued at these levels given the state of individual states' finances, which are far from out of the woods. We still think a "blow off top" is a strong possibility.
 

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