Oil is Going Up

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Oil is going Up

It’s Goldman Sachs’ market. We’re all just living in it.

The investment bank that a writer at a prominent music publication has compared to a certain parasitic cephalopod is at it again Tuesday.

This about face shouldn’t come as a huge surprise.

Goldman’s economists hinted in a report over the weekend that the firm’s commodity team might soon boost its forecast for oil prices. And I pointed out in a column last week that Goldman’s bearish call on the dollar didn’t make much sense unless the investment bank was also planning to change its tune on crude.

Oil is being viewed as a proxy for the global economy. If it’s going up, it must mean good things about demand from China, India and other emerging markets, as well as the slow recoveries in the United States and Europe. If oil’s going down, it must mean that demand is falling.

But here’s the big problem. Read the next sentence in the dramatic style of a movie trailer voiceover for maximum effect. In a world gone mad where nothing is what it seems, the market can only count on one thing: uncertainty!

But it’s also reasonable to think that the Fed will continue to leave short-term rates low at a time when other central banks around the world are hiking them to combat inflation. And that could lead to a weaker greenback, higher oil prices and more life for the aging bull market in stocks.

“Most of the world is still concerned about the unknowns of what happens after QE2,” said Chuck Butler, president of EverBank World Markets in St. Louis “And this market is all about sentiment.”

It’s all a bit silly. Investors didn’t seem to care that as crude prices were falling, so were gas prices. The average nationwide price of gasoline came thisclose to $4 a gallon a few weeks ago and since has dropped to about $3.83.

Of course, that’s still very high but at least prices are dropping instead of surging to new records. It wasn’t that long ago that many thought gas would top the summer 2008 peaks in short order.

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