Whats up with oil?

CME spot price of oil, year to date, 2012, showing 23% decline in just 101 days

The chart above shows the huge collapse in the spot price of oil we’ve just witnessed: from $109.67 on February 24th to $84.08 on June 4th, or a drop of 23% in just 101 days. That’s equivalent to drop of 109% annualised, or decline we haven’t quite seen in twenty years – what’s the driver?

Simple question, complicated answer. One of the key drivers have been the dramatic (and unwarranted) increase in the value of the US Dollar of roughly 4.74%, as illustrated by the chart below. This is has caused commodity prices almost across the board to crater. Other factors? The well document economic slowdowns in the United States, Europe and Asia all have contributed to falling demand for oil, and at the same time we’re seeing supply increase, perhaps sharply. Curious: most media seems to have totally overlooked a recent GAO report, where the existence of some THREE TRILLION barrels of oil, located in the United States no less, was revealed. How significant a find is that? Looking at the world’s proven reserves of oil, we can see The United States would probably have more oil than the Middle East, for starters. Oh yeh, why did I say the rise of the US Dollar was “unwarranted”? Well, the US has it’s own economic problems but on the whole isn’t much better off that Europe. That increase in the dollar? Classic fear trade, nothing to do with fundamentals.

US Dollar since February 2012, evidence of classic fear trade

US Dollar since February 2012, evidence of classic fear trade

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