Oil Makes Road to Recovery Slippery

Oil's recent roller-coaster ride has not only proven the truth of the "endless bid," it's posed an impossible roadblock to whatever recovery anyone might have hoped for.

The endless bid is what I have been calling the power of investment interest in oil to affect prices in a very big way. We saw oil move from the low $30-a-barrel area coinciding with the S&P 500 lows in March to top out recently near $75. No one has been able to find a fundamental reason for this move, because it is clearly and almost singularly investment driven.

But what the investor gives, he also quickly can take away: Retreats from risk in the stock market, dollar and the recent flight into Treasuries in the last several sessions has seen oil plummet almost $10 in fewer than six trading days.

Oil's Out of Control

We are faced with some very difficult and even grave questions when viewing this ridiculous volitility:

• Is the price we pay for oil dependable?
• Are commodities now linked forever to stocks?
• Is an economic recovery possible if oil cannot trade based upon supply and demand, and is only instead pricing at the whim of capital?

We've watched in the last several days as oil retreated with the S&P almost in lockstep -- it is no coincidence that it is rallying back a little today either, in light of the follow-through from Monday's late rally.

But the oil market does not operate like the stock market in many ways.