How oil can be back to where it was 12 months ago - PART II.

Part I of this post described the problem of why the price of crude oil is touching 140 dollars a barrel where only a year ago, the price was hovering around the 60 - 70 dollar mark. This post will discuss different ways we can be in the vicinity of the 75 dollar mark instead of the 150 dollar mark.

A) US Dollar makes a comeback - we have seen that happening already. The Federal Reserve has been working hard on making sure that the USD regains its lost value. It has been helped by the recent statements from the EU bank when it said that they are not going to raise interest rates in the coming future to deal with the rising inflation.

B) Congress acts on the opacity of the futures market and the illegal practices being carried out behind the black curtain. This will have the biggest impact of all. A signal from the US congress that it will close all loopholes and only let market forces dictate the price of commodities will cast the biggest shadow over the oil markets.

C) Drastic cut-down in the demand of oil - this is the most unlikely of options. Thousands of commercial airliners have to keep flying - Gas is still subsidized in India and China. The US is not designed for mass transit and foot traffic.

Once oil price per barrel starts to drop $3-$4 per day, more and more traders will try to sell to make any profit at all on oil.

These are good way to cut down the price of oil - thereby creating a lesser demand in the futures market - forcing traders to short their oil commodity holdings. Once that bear mentality sets in the traders, more and more will start selling in order to make any profit. This will result in a big domino effect whereby every index fund manager and hedge fund manager will sell their commodities assets (remember the dot com crash of 2001-02?). The result of this crash in oil price will be seen on the pump withing 1 week. Another huge impact of this crash will be on the world stock market. Money will flow into the stock market instead of going to the commodities black hole.