Unless your were trading oil futures on Friday, the markets might have seemed pretty dull. A barrel priced for June delivery hit a new record high of 126.27, and we shudder to think what that might mean at the pump. So, what has been driving crude's spectacular rise? Until a few weeks ago, there was a simple answer to that question: the dollar's decline. Oil producers and traders were simply repricing fuel to compensate for the dollar's shrinking purchasing power. However, since mid-March, both oil and the dollar have been moving higher, with the dollar gaining about 5% during that time, oil about 25%. The latter really began to take off a week ago, and it would now appear that the supposed civil war in Lebanon is the reason. We say 'supposed' because that's the way the news media have characterized it ' as an escalating battle between the Lebanese army and Hezbollah militiamen backed by Iran and Syria. But while Hezbollah has been trying to oust the pro-Western government of Prime Minister Fouad Siniora for 18 months, the current, major escalation of violence holds serious implications for the entire region. (Photo credited to Bloomberg) Our Berkeley-based colleague Larry Amernick offers a timely perspective on the conflict in his latest newsletter, a biweekly with a global point of view that is geared toward traders and investors. (Click here for a free sample.) Because the picture we get from Larry is quite different from the one the major news outlets are describing, we will quote him at length: 'The major media outlets have so far ignored this vital and important story. What triggered the violence was Hezbollah's blatant attempt to create a 'state within a state.' Recently, Iran shipped and was attempting to install a modern communication and surveillance system for
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