A picture is worth a thousand words
Ever wonder why inflation has been so bad lately? Yes, the increase in demand from emerging markets has a lot to do with it, but it's not the only piece of the puzzle. An increase in the supply of money usually leads to rapid inflation as well. Even though the government has stopped providing M3 statistics, many people attempt still track it independently. Notice a pattern in the above chart? As the Fed floods the market with liquidity to keep the financial system from collapsing and the country from falling into a deep recession, the prices of "stuff" continues to rise.
We have finally seen a near $10 pullback in the price of oil over the past couple of days. I thought that it had gotten a little ahead of itself. It will be interesting to see where things settle. I personally doubt that it will drop below $115 to $120 before it either stabilizes or begins to rise again, but it is difficult to predict the short-term movements in things. There has been a lot of talk about reduced driving in U.S. This perceived demand destruction, combined with profit taking is probably responsible for the weakness that we have been seeing in the energy markets lately. There's only so much drivers can cut back though. A large percentage of gas consumption is inelastic. People still have to drive to work...at least the people who still have jobs. If anything, I actually expect the oil consumption in China to increase as it expends energy to rebuild after its tragic earthquake. The supply of oil certainly has not grown lately. The rising price of oil is a long-term trend that I will continue to play. I have sold a few of my smaller E&P positions lately and rolled that money into my two favorite oil / nat gas companies, neither of which are based in the United States.