cstauffer

5 Reasons Why the $700B Bailout Could Translate to $250 Oil

I do agree with the author that passage of the Paulson plan would put upward pressure on oil for two simple reasons: 1. This increase in the supply of dollars in the world will put significant downward pressure on the U.S. Dollar, 2. the converse of the demand destruction argument would occur in that any improvement in credit flow will help stem the worldwide economic slow-down and thus reduce the impact of demand destruction on oil prices.

In reality, demand destruction outside of the U.S. are right now mostly based upon speculation and this speculation has given cover to hedge funds and other large institutional investors who were forced to de-leverage to justify the unwinding of their energy and commodity investments. If the credit markets improve, many institutional investors will re-establish many of these positions.