The, in my opinion, crux of the current situation with oil, boils down to whether we are going to ultimately experience inflation in the world economy or deflation.

Until recently, I would have come down on the side of inflation. However, the argument for deflation is becoming stronger. The only asset class that does better in a deflationary environment is gold and the US$. Though, at present, I still by a slight margin come down on the side of inflation, in my opinion, the argument for deflation is becoming stronger.

The argument regarding the integrity of the US$, has merit. However, a perusal of all other major currencies reveals that in a relativistic sense, the US$ is in better shape than virtually all other currencies. This does not mean the US$ is in good shape. Merely that it is likely that the US$ is in better shape than all other currencies. If such is correct, then it is quite possible that oil will remain weak in a relativistic sense.

Neither rapid inflation or deflation is desirable. However, given the option, inflation would be much kinder to all hard asset classes, such as oil.

Brian