Better Than Expected Economic News Drops Oil

Better than expected economic news dropped the price of oil this past week. Think about that statement.

So several better than expected economic reports have come out this week, and oil has dropped.  Prices fell after  the Census Bureau reported Friday that June sales of new single-family homes came in at a seasonally adjusted annual rate of 530,000, down 0.6% from May's revised reading of 533,000 and the University of Michigan consumer revealed that consumer sentiment had risen. 

Usually, better economic news translates into higher demand, which increased the price of oil.  But not in this market.  As Fortune writes:

"Both reports, on top of an unexpected increase in orders for durable goods, drove investors away from oil which has been used as a hedge against economic downturn."

"[Investors] bought oil because they were worried about the economy," said Phil Flynn, senior market analyst with Alaron Trading in Chicago.

There you have it.  It hasn't been demand which has spiked oil over the last six months (demand has been down) but oil being used as an instrument to hedge investors from a weakening dollar and stock market.  If the dollar and stock market begin to pick up, oil will come down much further.  Of course, those are big iffs.  But eventually it will happen.

As I've predicted before, oil below $100 by January 2009.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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