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Crude Oil Explodes Higher to $130 Illustrating Irrational Markets

Commodities / Crude Oil Sep 22, 2008 - 04:39 PM GMT

By: Nadeem_Walayat

Commodities Best Financial Markets Analysis ArticleThe financial markets being hit by ever larger and more volatile waves of panic today saw crude oil surge from Fridays close of $102 to a high of $130, this is as a direct consequence of last weeks decision by the US governments decision to initially buy up $700 billion of bad bank debt that looks set to eventually run in the many trillions. The proposed plan is highly inflationary and hence scared capital is attempting to seek safe-havens.


The plain truth of the matter is that the US cannot afford the announced bailout plan, and the cost as I voiced over a week ago that should the US embark on such a path would be the loss of confidence in US Treasury bonds and hence the US Dollar, as literally the official levels of US debt explode higher even if suspect accounting practices are employed to hide the likes of the $5 trillion of Fannie and Freddie debt that could default by as much as 10% or $500 billion, which is far higher than the US Treasury estimate of costing US tax payers just $25 billion. Yesterdays analysis voiced concerns for US bonds and the US Dollar as well as suggesting that commodities would eventually react higher as a consequence of the highly inflationary policies being announced the world over.

Under the current market environment, normal technical and trend analysis goes out of the window, as basically its purely a traders market where market participants in the face of huge volatility and uncertainty REACT to price movements in real-time. Which is precisely what we have witnessed with crude oil today, there is no way that such a move in such a short-time period of one day could have been forecast, due to price trend triggers occurring over several minutes rather than several days or weeks, therefore only an active trader in crude oil futures would have been in the position to REACT to the price movement, as it tends to take several hours to analyse a market, usually when the price is at rest , i.e. after the market has closed for forward trend forecasts.

My existing crude oil analysis as of 4th July 08 and 16th July 08, made at a time when crude oil was trading at above $145, called for a trend in crude oil over the next few months towards $80, the subsequent price low of $90 has fulfilled much of this price and trend objective and an update is now pending as to the next multi-month trend.

However, immediate term trend forecasts are not possible under the current level of volatility. Therefore I can only re-iterate the mega-trends that are driving energy prices such as for crude oil ever higher of climate change, population growth, peak oil and the emerging market middle class consumption.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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