The Grinch Who Stole the Bull Market!
I hate to be the one that tries to put a damper on your bullish expectations, but don't expect oil prices to soar above $100 a barrel unless we have a major geo-political event. Even as demand recovers, oil has a $15 to $20 stimulus premium built into the price; a premium that has to come out before oil prices can really soar. Part of that stimulus is related to a weak dollar. Yet with the economy seemingly improving, it's the dollar that will rebound and if that happens then oil will have downside price pressure that could actually lead prices lower.
Bloomberg News did an excellent job explaining that the dollar might subdue oil and other dollar influenced commodity prices. Bloomberg writes, "Speculators betting the commodities rally will continue into a third year are being confronted by currency investors wagering the dollar will strengthen in 2011. If history is any guide, the foreign-exchange market will win."
They point out that the dollar has moved in the opposite direction of commodity prices 18 of the past 22 quarters. During the 11 quarters in which the Dollar Index has gained since the first quarter of 2005, the CRB fell eight times. So despite improving demand oil still may not be as strong as one might expect. Downgrades in Europe are being offset with promise by the Chinese to help support an EU bailout!
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.