It's baaack! The endless bid for oil.

Oil has been rallying because of the weakness of the dollar and because of the specter of impending inflation.

Or at least that is what I continue to hear.

Yet in the last several sessions, the dollar has found some amazing strength, and gold, the best proxy for inflation, has come down quite a bit. So what is going on with oil?

What's driving oil now?

It's the endless bid.

Goldman Sachs

recently revised its oil targets for 2009 and 2010

, raising its $52 target price for the near three months to $75. It gets worse, according to Goldman. Year-end targets for the crude barrel in 2009 were revised up to $85 and a $95 target was set for 2010. How do they come up with these figures?

Goldman analysts cite increased demand. Yet there is absolutely no sign that demand is increasing, quite the contrary. Goldman argues that oil is rallying on


of increased demand along with similar expectations of recovering economies in the second half of '09 and into 2010. Even if this gargantuan leap of faith were true, why isn't natural gas, a perfectly wonderful and plentiful energy source, rallying as well? Why is it languishing at a mere $4s/mmBTU, while crude streaks ever higher?

And how do those Goldman oil analysts even create these mythical target prices?

It's so hard to gauge the strength of the endless bid.

The endless bid is what I've begun to call the incessant, unrelenting and often unreasonable desire of investors to have exposure to oil. In commodity index funds, through ETFs and directly in futures markets, there is a renewed interest in having oil as a part of every investor's portfolio.

The oil market is a delicate market. Even more importantly, it is a relatively


market. New York Mercantile Exchange crude oil futures, the most widely quoted, relied-upon price gauge for oil, have about 1.3 million contracts of open interest. The average price per barrel is about $70. Therefore, the entire notional value of crude oil traded on the Nymex is a little under $100 billion.

That sounds like a lot. But not if you consider that the notional value (market capitalization) of even one oil company like


(CVX) - Get Report

is 40% more. The market cap for

Exxon Mobil

(XOM) - Get Report

is 3.5


more. Intuitively, we can expect that even a relatively little amount of new investment interest in oil futures is going to have a huge impact on the price.

That's the endless bid.

We saw the endless bid fuel the run-up in oil to $147 in July 2008.

We saw the endless bid withdraw just as quickly in late 2008 and through February of 2009 with a resultant low of $32 a barrel.

And now, it's baaack ... and makes any estimate of a target price for oil a total shot in the dark, a complete guess, practically unrelated to any economic forecasts or supply/demand estimates.

And where will it end?

It's an important question we'll save for the next column.

Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks.

Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years.

Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals.

Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.