Oil Strikes $80 – A Sign for 2010?
There isn’t single commodity that could touch the volatility of oil through 2009. Going into the year oil was coming off summer highs of $147 a barrel and had dipped as low as $37 as the global recession reached its peak. With 2010 on the horizion, it looks like we could have a repeat of 2008.
What’s Driving Oil
The rebound in oil prices is better understood as an investment in a recovery than it is the commodity itself. Energy use falls during recessions as manufactuers cut back and jobless commuters stay home. Also, global shipping of products falls as shoppers decide to buy less. Though we’ve had quite a surplus of oil throughout the past year, should the economy recover, demand for oil will as well.
Inflation
Oil is also an excellent inflation and anti-dollar investment. Since oil is traded universally in dollars, when the dollar dips, oil uses rises. Alternatively, when the dollar rises, oil prices fall. Just over 99% of the worlds oil is traded for US Dollars at the market and investors have grown to accept the two as an inversely related trading pair.
Oil $150
It doesn’t seem much of a stretch to think that oil prices will travel back to their summer 2008 highs. With inflationary policies in full effect and the world economy picking back up, we could see a retest to new highs. Also, with oil pushing forward even with weaker winter demand, investors should expect that today’s price is 2010’s bottom.
Hey Jordan, you make a good argument, however, I’m still not convinced we’ve recovered. If indeed we have not, we could have a repeat of oil crashing back down to the $30’s as deflationary forces win out. Remember, the Federal Reserve’s Chairman Ben Bernanke has one purpose - to help the banks. The banks have been given free money basically to invest all over the world. If there is no recovery, this money will vanish as bubbles everywhere burst and investments wiped out. The Quantitative Easing project by Ben is a huge shell game. If it goes south as i suspect it will, there will be real pain and the natural deflationary forces will defeat artificial inflation.