Oil is showing itself as a convincing sign that the recession is almost surely over.
If we look closely to the oil market, we have a very convincing corroboration of the "V"-shaped recovery that economists and
Chairman Ben Bernanke are so reticent to admit to.
But there's little doubt that we are in the midst of an amazing recovery. Even one glance at the
since the lows of March 2009 show how strong that recovery has been:
No one wants to be too optimistic -- just in case things turn ugly again -- but it's undeniable that this looks like a "V" to me. Now, let's have a look at oil prices over the same period:
The similarity is impossible to deny.
There's a reason for that, many of the same reasons, in fact. Confidence is reason number one. We know that much of our investments move based on confidence in the future. More than growth or access to credit, the biggest change from the lows we saw in the oil market in March of 2009 compared to the prices we see today is an increased level of consumer, investor and corporate confidence.
And that confidence has been backed up by hard numbers. There is confidence from earnings reports that the slide has ended, confidence from unemployment numbers that looked like they were threatening to enter into extreme double digits, but now look pretty sure to not slip much past 10%. There is confidence from ample proof that many companies have stopped contracting and squeezing their bottom line of costs and are instead realizing more top line revenue growth from increasing orders and sales.
Nowhere does confidence in a returning growth picture reflect itself better than in the oil market. The oil market is a unique bellwether for measuring investor and consumer confidence. When people believe that the worst is behind them, they tend to buy oil companies and they have definitely been buying oil.
Oil is trading at almost unfathomably high levels compared to fundamental supply and demand figures and is pointed to go ever higher this year and next. Still, if we were looking for solid, confirming evidence that the worst of the recession was behind us, we should take some solace in the high price of the crude barrel.
A continuing recovery will unfortunately lead to continually increasing energy prices -- not only from investor confidence and increasing flow of money into oil, but also from the real growth and increasing demand for crude oil and other energy supplies.
As this connection of confidence and recovery to oil prices continues to make itself felt, there will ultimately be a question of whether a really high price of crude can work against the recovery, slowing its pace and really biting into the consumer's wallet.
There is definitely a point where this scenario of "limited returns" comes into play, but having seen the effects of $150 a barrel oil in 2007, we still have a way to go before those effects are seriously felt.
For now, oil is painting a positive picture of growth and confidence, and is a convincing indicator that the worst of the recession is over.
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.