The commodities got it in all directions. Oil bulls got slapped everywhere they looked as a rate hike in Europe, weak manufacturing data in the US and growing concerns about Ireland's debt problems slammed commodities across the board. Perhaps the Fed knew that things are not that rosy and they were right to print all of that money. Now with inflation running wild in China, the market knows that the Chinese are going to have to tap on the breaks, striking a major blow to global oil demand expectations.
Over the longer-term, this is another critical time in this oil market when the price failed to capitalize and follow through on a breakout to new highs. Just 5 days ago oil hit a new two-year high bring out a chorus of $100 a barrel predictions that many said that we would see by the end of the year. These calls seem to me to be the same predictions we heard in the beginning of the year as oil hit 8395, a post economic crisis at least until the Dubai crisis sent oil price hurling back down to below $70.00. Then a UAE $10 billion rescue plan and all was well in the oil market. Oil surged and hit a new high of 8715 in May and the $100 a barrel predictions were heard quite loudly. That was before the Greece debt crisis which brought oil back down to 6424. Then of course it was the EU to the rescue with a massive bailout package and oil recovered slowly back to the $80s before settling back into the low $70's. Next oil got the boost of a lifetime as the Federal Reserve signaled to the market that they would print more money, sending oil on an incredible bullish journey to a two-year high price 8863! Of course now with concerns about Ireland's debt and China's runaway inflation, oil is back in the low eighties again.
My point is that despite all of the talk of bullish fundamentals for oil, the truth is that the price of oil has been fragile all year. Like the economy, oil's upward moves all this year have been in the aftermath of government bailouts. In the end, oil is only as good as its last bailout and the selloff of just one crisis away. As I said back in the beginning of this month, "As I see it, the Fed policy, while bullish for oil, will not get it to $100 a barrel. In fact the risks are heightened that QE2 will cause a bubble burst in emerging economies at some point, causing an oil market crash. In the short run, you cannot fight the Fed. In the long run, you must be wary."
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.