It's a good bet that oil prices will continue to drop because of what investors don't know instead of what they do, according to Phil Flynn, a senior energy analyst for PFGBest Research and Fox Business Network contributor in his FuturesMag.com column.
The greatest of all the unknowns driving the oil sell-off involves European banks, said Flynn. Is the weight of bad sovereign debt going to create the Euro version of Lehman or is it just a short term liquidity freeze? Does one bank trust another and will lending and credit dry up as banks refuse to act? asked Flynn in his FuturesMag column.
The run to safety has been best seen with the frenzy over long-term paper and gold. Traders seemed to price in the ever-increasing odds of another global recession. Despite the fact that refiners have seen a recent uptick in demand, oil prices have dropped on perceived fears of the demand destruction, according to Flynn.
Add to that more fears about U.S. real estate with a weaker than expected existing home sales number and the market was a fear driven mess. The VIX soared a whopping 35 percent as traders feared what might happen next, he said.
Going forward, investors are asking whether the country is in a recession. Leadership is what America desperately needs because investors are trading more on fear instead of on facts. The current oil sell-off could be the beginning of a long-term shock, said Flynn.
Batten down the hatches...