So what was that all about last week then, eh? I'm not going to spend much time here on silver, entertaining though it may be, because it is a thin market and crazy things mean less there than elsewhere. Here's a link for those who are interested: I'd say the conspiracy theory must broadly be correct but I'm certainly not going to argue the toss.
Unless the silver thing does actually turn really nasty, oil matters a lot more. Really nasty ? Well, if it causes life-threatening problems for JPM or HSBC (the big short positions); and/or encourages the US authorities to indulge in one of their really brutish, statist interventions like Roosevelt's 1933 confiscation of gold. When you read what transpired over Lehmans, AIG et al in 2008, you needn't harbour any illusions about due process in the Land of the Free.
So what about oil ? This was my 2011 prediction:
"Oil to be in 3-digit territory by year-end and to stay there forever. It will cross the 100 line earlier than that, but there is scope for some dithering on either side initially. Cowardly caveat: a combination of second-leg global recession in 1H11 plus absence of strife in Caucasus / Middle East / Nigeria etc could delay the timing."
Not much in need of revising there (and no shortage of strife). Brent was at $93 at the time, WTI at $89: it didn't seem a particularly bold prediction, but I can point you to some 'professional' econometric forecasters who had it staying in 2 figures for the whole of 2011.
Last week's commodities action, with oil as the centrepiece, is interesting for a number of reasons. (1) Goldman Sachs seemed to know it was coming; (2) it followed Obama's little tantrum (and the UN's !); (3) it has suited those who are trying to levitate the USD right now. For now.
That's where it gets complicated, however, because of course most people would reckon that in the long-term the US is deliberately devaluing the $ via inflation. I'm not going to attempt to summarise here the full conspiracy theory which synthesizes all this stuff. There is a simpler point to make, however: the commodities avalanche was led by gold & silver. Now in a world of leveraged trading and ever-increasing margin calls, a sudden big movement can force big liquidations automatically. So any liquid assets stand to be hit in the storm, and commodities fit this bill pretty well. The rest is a self-feeding downward spiral - until some big cash buyers with a strategic outlook on life come to the party ...
Anyhow: the price of oil remains squarely in 3 figures even after last week's 'rout', and why shouldn't it stay there ? Only Global Recession 2 could undo this, and of course the two are teleologically intertwined. And I do mean global: continuing misery in US / EU / Japan alone won't do the trick, IMHO.