Is oil starting to act normal again?

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Since the uprisings in the Middle East began in the early part of this year, especially when Egyptians took to the streets, oil prices have been out of whack. Due to fears that the protests would reach Saudi Arabia and hurt oil production, oil prices shot up and also began acting irrationally. They seemed to rise when the stock market rose and fell with it as well. Actually, sometimes it would rise regardless of how the stock market performed. The strangest part about the rise in oil price was that there was no actual reason for it. Supply was sufficient and demand did not suddenly increase or anything. It was purely fear and speculation.

Saudi Arabia said several times that it wants oil to be in the $80 a barrel range so Americans don’t start investing in alternatives. Right now the price is about $94, which is down from about $100 earlier this month. It means that Saudi Arabia is starting to have the desired impact now after weeks of fears and speculation trumping their efforts to bring prices down.

In addition, I noticed that yesterday the stock market performed well in the U.S. However, oil was essentially flat on the day and was trading lower for most of the day. This is a good sign. Oil should be going down right now when the stock market does well. The reason is simple. If oil is less expensive, then most companies do better since their fuel expenses are lower and people are less concerned. This causes their stocks to go up. In a normally functioning oil market, this is how oil should behave vis-a-vis the stock market for a little while until the price of oil drops to roughly $80 or so. Hopefully, this is the beginning of oil acting normally once again.