Oil rebounds on Turkish attacks

Some traders are using oil as a hedge against the falling dollar

Oil prices have rebounded above $113 a barrel on concerns about Turkish air raids against Kurdish targets in Northern Iraq.

Worries about the raids appear to have outweighed the strengthening US dollar, which has pushed oil prices down in the last three days.

US light sweet crude had fallen 6.8% from its record near $120, but has now risen to trade at $113.27 a barrel.

London Brent crude for June delivery was 92 cents higher at $111.42.

Renewed tensions in Northern Iraq have raised concerns about the security of oil supplies in the region, even though there have been no reported attacks on oil installations.

Before the latest flare-up between Turkish troops and Kurdish groups, the stronger dollar had been driving prices down.

Commodities appear to have been responding to movements in the currency markets Damian Cox, John Hall Associates

Yet the relationship between currency markets and commodity prices is a relatively new phenomenon, according to Damian Cox from John Hall Associates.

"Since about August, commodities appear to have been responding to movements in the currency markets," he said.

"As the dollar has weakened, some people have moved into commodities."

Reversed relationship

In the past, a weakening US dollar would have been seen as a sign of weakness in the US economy, which would have meant that demand for oil was likely to fall and so the oil price would fall.

But now, some traders see commodities such as oil as a hedge against declining currencies.

So, if they were worried about the dollar falling in value, they might sell dollars and buy oil, for example.

Conversely, as the dollar has risen in recent days, they might have sold oil and bought dollars.

As a result, the relationship between the US dollar and the oil price appears to have reversed.