Dollar Rally Hurts Commodities

Oil To Hit $50 Within 12 Months?

Crude fell as much as 2 percent to $112.37 a barrel, and coffee and wheat declined as the dollar headed for its longest winning streak in more than two years and on concern a spreading economic slowdown will reduce demand for raw materials.

Oil at $30-$50 a barrel? We don't know about you, but this wouldn't surprise us at all.

Our Quant side flagged the move in crude oil prices on May 30. They were, as nearly always, right on the money. And now it's time for the data crunchers like us to get into action. It is our firm belief that crude oil represents a true bubble. The tests of a true bubble are that it should have little connection with fundamental data; that the bubble's very existence should create ample nonsensical stories as to why the bubble is for real, and that it will last and last. Crude oil meets the test quite handsomely.

As is clear, there is hardly any correlation between annual changes in demand and the price of oil. If demand increases and the price of oil increases, then we all sit there and draw up spurious correlations between the two. Fact is, there is virtually no consistent finding on "higher consumption leading to higher prices" theory.