Oil prices hovered around $71 a barrel last week with most movement linked to the climbing or falling dollar. The usual concerns about inflation and hopes for an economic recovery were the major factors in last week’s moves. Even a week of widespread rioting in Iran and three new production-cutting attacks on oil pipelines in the Niger Delta did little to move the markets.

The biggest move of the week came on Friday, when July futures fell by $1.82 a barrel to close at $69.55 on an increase of 3.4 million barrels in US stocks of gasoline. Total US daily demand for petroleum products is running six percent below last year.

The prospects for a Chinese economic recovery remain a major unknown. Last week the World Bank raised its forecast for China’s GDP growth this year to 7.2 percent and Platts calculated that Beijing’s oil consumption was up 6 percent in May over last year. Chinese analysts say that while China is spending billions on building new infrastructure, purchasing foreign companies, and importing commodity, the employment situation remains weak and the small increase in new jobs does not correlate with a 6 or 7 percent growth in GDP. Exports continue to fall. China recently announced that it has finished filling the strategic reserve tanks that it has built over the last several years. All this suggests that demand for oil from China could ease.

Most oil traders continue to say that oil is over-priced, given the weak fundamentals. In recent weeks gasoline prices have moved up to a current national average of $2.69, a rate high enough to suggest that the increase in consumption we saw in April and May could be coming to an end. While some are looking at oil as a commodity to be consumed, others see oil as a store of value that can be used to offset a falling dollar and inflation. This struggle between oil as a commodity and oil as a financial tool is likely to continue for the foreseeable future, or until governments put restrictions on speculation.