As oil prices hit the lowest levels since July 19th people are starting to realize something I have been saying for a very long time and that is, the price of oil is not acting on its own but is being driven by outside macro-economic forces. I have said time and time again that the price of oil really has been acting as a pawn in the economic recovery and is being driven in large part by economic forces. When the Fed prints more money and the dollar falls and the stock market rises then oil rallies.
As the outlook for the economy gets gloomy, like after the Fed meeting last week, stocks fall, then oil gets hit and goes lower. In other words, the fundamentals of supply and demand for oil are dependant totally on the Fed and the prospects for the economy. Of course when I first started to write about these phenomena, it was met by skepticism by a great many people. Some felt that it was a case of the oil market changing because we hit peak oil or was the byproduct of evil speculators.
Yet in today's Wall Street Journal, they are writing about what has become so clear to many. The Journal says, "From Houston to New York, energy traders and commodity investors are watching a new and unusual market phenomenon: a persistently high correlation between oil and stocks. Crude oil is now influenced more by the stock market than by its own inventory levels or demand patterns. (Something I have said many times) Lately, that lockstep has reached an extreme, with the correlation between crude oil and the Standard & Poor's 500-stock Index hovering around 70%, doubling the average of 34% since 2008."
ibtimes
