The big question is if crude oil is headed higher, how much of a price increase can the US economy afford and withstand?

Here is a raw commodity that is used by everyone and the US has no control over it. This key commodity to commerce just happens to be in areas that are hostile to the US. If we see a hiccup in the supply chain that changes this market dynamic, even for a short time period, we could see oil move back to the $100/barrel range in a heartbeat.

How will this affect the US equity markets? If crude oil heads back to the $95-$100 range, I expect that the economy will take a hit and that will send the major indices south. In this short video, which I made a few days ago, I share with you

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In the energy market on Tuesday, crude for August delivery prolonged its slide, closing at $62.93/barrel, down $1.12. August reformulated gasoline lost a penny, to $1.73/gallon. Economic worries seem to have firmly established themselves at the driver of the moment. “The market got way ahead of itself with hopes that the [global economic] recovery would be quick,” said Zachary Oxman, managing director at TrendMax Futures.

“I think the dips you are seeing now are preceding the next big down move in stocks and commodities as well,” Oxman added. “I’d be net short, with a trading bias to the short side.”

Another bear is Edward Meir, of MF Global, who wrote that, “Despite the string of declines hitting the crude-oil markets of late, we do not think the current selling bout is over just yet … The markets remain vulnerable to a poor fundamental backdrop, typified by high stocks and lackluster

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In the energy market on Friday, oil fell off but held above $40, with crude for March delivery closing at $40.17, down a buck. March reformulated gasoline dropped nearly 2 cents, to $1.2507/gallon.

The payroll numbers were of course negative for oil demand going forward, but traders like the weakening dollar and the prospect of an effective stimulus package.

Many analysts believe that $40 may prove to be a floor for crude, as OPEC continues to cut production.

Chakib Khelil, Algeria’s energy minister, said this week that there was a 50% chance of another supply cut during OPEC’s next meeting on March 15.

“While crude-oil markets may remain vulnerable to further disappointments in … economic conditions, there is also the potential for a price base to be forming,” wrote Brenda Sullivan, of Sucden Financial Research.

Source: Crude Drops But Holds $40

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In the energy market on Friday, oil moved slightly higher, with crude for March delivery closing at $41.68, up 24 cents. March reformulated gasoline prolonged its recent rally, gaining 3.78 cents, to $1.2687/gallon.

Traders were somewhat heartened by the GDP figure, as the drop was still below economists’ expectations of a 5.5% decline.

Brenda Sullivan, an analyst at Sucden Financial Research sounded an optimistic note, writing that, “While crude-oil markets may remain vulnerable to further disappointments in the economic conditions, there is also the potential for a price base to be forming.”

Of note was that about 30,000 U.S. refinery workers could go on strike if they don’t renew a union contract that expires early Sunday. The dispute is between the United Steelworkers union and refiners.

That had Edward Meir, of MF Global (NYSE:MF), concerned. “If things take a turn for the worst, a nationwide strike could affect as much as two-thirds

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Normally, I don't care for predictions but considering this was the fellow who in 2005 said their could be a "super spike" in crude, let's see what he has to say (I am on record as saying a "World of Shortages" theme combined with Western governments flooding the world with fiat paper can only combine to ultimately create higher prices). These are the first people (along with Cramer - have to give him kudos) who finally are realizing that the world does not revolve around the United States of Subprime; a position I've been advocating for a long while. The quicker we move away from our country-centric views, the better. U.S. gasoline is no longer the leading fundamental driving oil markets, according to a report penned by Arjun Murti of Goldman Sachs Tuesday. Murti who famously predicted the dawn of the “super spike” back in March 2005, says ...