Crude Oil Testing Psychological $50 Level

July Crude Oil futures surged to $50.21 on Thursday before profit-takers drove the market back towards unchanged for the session. The $50.00 level is perceived many to be a psychological level. A sustained move over this level could lead U.S. companies to revive operations that have been shut down for years.

One catalyst behind today’s price action is the weaker U.S. Dollar. A lower dollar makes dollar-denominated crude oil more attractive to foreign buyers. Earlier in the week, the government reported a larger-than-expected inventories drawdown. This could be a sign that buyers are starting to take care of the spare supply.

Traders are also reacting to the news that Chevron says its activities in Nigeria had been “grounded” by a militant attack, worsening a situation that had already restricted the supply of hundreds of thousands of barrels. Outages, due mainly to the wildfires in Canada and the unrest in Nigeria and Libya, has reduced production by nearly 4 million barrels per day.

June US Dollar Index futures weakened on Thursday, driven lower by profit-taking and a weaker-than-expected business spending plans report. According to the Commerce Department, orders for long-lasting U.S. manufactured goods surged 3.4 percent last month after increasing 1.9 percent in March. Traders were looking for durable goods to rise 0.5 percent in March. This was the good news.

A drop in non-defense capital goods orders excluding aircraft, a closely watch proxy for business spending plans, was the bad news. This indicator fell 0.8 percent after slipping 0.1 percent in the prior month. These so-called core capital goods orders have now declined for three consecutive months.

The weakness shown in the business spending plans diminished hope of a June or July Fed rate hike. This make the US Dollar a less attractive investment. After the data was released, Fed funds futures contracts implied traders saw a 28 percent chance the U.S. central bank would raise rates in June, down from 32 percent on Wednesday.

The EUR/USD was boosted by the news of the weaker dollar and profit-taking. The GBP/USD also saw gains related to the weaker dollar, but the Forex pair was primarily underpinned by this week’s polls showing that a majority of Brits favor remaining in the European Union.

Short-covering helped August Comex Gold recover some of this week’s losses, but the rally was unsustainable, leading to an intraday break from its high. Although the dollar was weaker, there weren’t enough gold buyers in the market today to sustain the rally. Mixed stock market prices also contributed to the weakness in gold.