Is Oil in a Bubble?

Technical Scoop
"...So is oil in a bubble? We do not believe so. The dollar is in a long decline and until it stops falling oil prices will keep on rising. Add in the still growing global demand in the countries where fuel has been subsidized plus the potential for war in the Mid East, and we could yet see those prices of $150 and $200.

Near-term, though, the dollar is currently being supported by talk that the Fed will no longer cut interest rates, and because of rising inflation might have to hike interest rates, and this might cause a correction in oil (and other commodities). But given the state of the US economy, they cannot afford to hike rates and indeed may have to cut further. So the talk is just talk or jawboning as the Fed has recently noticed that the US Dollar is weak (normally the US Dollar is the concern of the US Treasury not the Fed). The inflationary impact of a falling US Dollar and rising oil prices is a fight that will have to come much later. Right now the focus of the Fed is on the weakening economy. And as before they are lowering interest rates and flooding the financial system with liquidity in order to stem the weakening economic outlook." (6/6/08)

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