BUY OR SELL-As dollar weakens, are oil prices poised to rally?
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*Oil may rise from near one-year high on weaker dollar
*Investors shun "safe-haven" dollar for risky commodities
*Oil surplus may end inverse price correlation with dollar
NEW YORK, Oct 22 (Reuters) - Can a weaker dollar propel oil prices higher than current levels near $81 a barrel, or will bearish oil market fundamentals hold oil prices back?
The correlation between oil prices and the dollar has reached a coefficient of -0.9 in 2009, Reuters data shows.
That strong inverse relation means oil -- priced in dollars -- has been highly likely to rise when the greenback slumps.
The dollar has weakened 14 percent against other major currencies since it reached a 35-month high in March. .DXY On Wednesday, oil briefly rose to a 12-month high of $82 a barrel and the dollar fell to a 14-month low.
Most analysts foresee more dollar weakening on record U.S. government borrowing, a stilted economic recovery and doubt over the greenback's role as a reserve currency. (For a graph that shows oil and dollar performance: here )
RISK APPETITE
Oil may be a good buy if the correlation persists.
"Show me a dollar that goes lower and I'll show you oil prices that go higher," said Jan Stuart, global oil economist at Macquarie Capital. "Exactly what is causing the correlation is less clear, but it's obviously happening."
New money flow patterns have reinforced the correlation. Commodities are gaining as economies rebound, boosting demand prospects for raw goods. Investors are buying riskier assets while shunning lower-yield ones, like U.S. Treasury bonds.
Oil futures are drawing in big financial players, while exchange-traded funds (ETFs) that pay returns when oil futures rise have attracted new retail investors.
"There's a skepticism out there about financial assets, and oil is taking on a role that has traditionally been held by precious metals like gold," said MF Global's Mike Fitzpatrick. Continued...
