The oil market is up for grabs

The crude reality

But, as the oil bulls are quick to point out, supply and demand fundamentals represent only half the story regarding crude. In the post-financial crisis world, oil is not just the world's most important commodity, but a hedge against an even-weaker dollar, and an inflation hedge. And that's chief among the factors that have kept oil $20 -- perhaps as much as $25 -- above where it should be today, if fundamentals ruled.

But they don't and that's why OPEC, which meets later this month, is going into the session pleasantly -- make that exquisitely surprised, that global oil prices are this high, given the amount of surplus crude sloshing around the world. Consider -- OPEC enters another meeting during a period of mild demand and brimming supplies... and it does not have to cut production to achieve a high oil price: it's already high. Talk about being in a fortunate sector.

Oil Analysis: Where is the price of oil headed from here? Given the connection between the dollar's value and oil, if the U.S. economy strengthens in Q4 2009/Q1 2010, that should boost the dollar, and help trim oil's price. Absent that, the large U.S. budget deficit will dominate the discussion, and oil's price will be supported. Bottom Line: The calculation is that the oil bears have the advantage -- the dollar moves higher on the U.S. economic recovery, and oil trends lower.