I've shown in the past how a spike of 100% or more within a year has always caused a recession. This time obviously is no different. We can probably thank the Fed for our current situation. I argued months ago that the massive monetary inflation to save the banks and housing market would ultimately make matters worse and not cure any of the problems in the financial or housing sectors.
We are seeing that in fact that is exactly what is happening.
Now I'm going to dispel another myth that seems to be brewing. The more I listen to the media the more it appears that everyone is convinced that because of supply and demand fundamentals the price of oil is going to continue higher and higher.
Just like the theory that monetary inflation would fix the banks this theory is completely ridiculous. Just like a spike creates a recession the recession creates demand destruction. It does it every time and I guarantee it is going to do it this time too. When you take down the demand side of the equation until supply is adequate then price drops.
All this talk of skyrocketing prices for the foreseeable future is as usual complete crap. The parabolic nature of this rally suggests that when the market finally catches on to the fact that demand is collapsing the price of oil will fall rapidly.
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