Get Ready for $75 Oil
NEW YORK ( TheStreet) -- Oil bulls are increasingly finding it difficult to hide from the avalanche of bearish news from Europe. Almost everyone I know, including myself, hates watching money flow into a gas tank, so following oil prices in a bear market is a labor of love.
Fear resulting from the European crisis is the most influential catalyst driving short-term oil prices lower. Expanding the time horizon diminishes the pricing influence of the European economy; however, I will focus on Europe and the short-term price expectations.
Not all oil is created equally -- the price disparity between West Texas intermediate and North Sea Brent continues to widen. The disparity is influenced by the exchange rate in the euro/dollar currency pair. As the dollar gains against the euro, oil becomes more expensive for Europeans. Higher energy prices create economic headwinds for Europe, while simultaneously exerting downward pressure on the WTI price.
The gale force wind blowing against the European economy appears to grow in intensity, starting with warnings from the European Commission that if Greece is to receive more aid "Greece will therefore have to make substantial additional expenditure cuts in the coming months." Greece may be able to implement austerity measures (however temporary) large enough to fool the commission into granting another handout. It's doubtful in my opinion much will be accomplished beyond kicking the can a short distance down the road. If Greece continues its unblemished consistency of spending beyond its means, we can expect the bar tab to be cut off. The inevitable hangover quickly following will most likely result in Greece reaching for 600mg of "exiting the Euro" pain reliever. Count on Greece to become either a ball and chain or an exceptionally heavy ball and chain on Europe's economy depending on Greece's resolve to stick to its agreements. The current unemployment rate is over 20% and likely to increase to over 30% if Greece leaves the euro.
SpainAs if European leaders don't have enough to worry about with Greece, Spain continues to circle the drain. Faced with a 25% unemployment rate and empty bank vaults, it's hard to handicap which country will fall first. Like dominoes, once one pushes the emergency exit button, expect more countries to follow.
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