Helping support crude oil prices and commodities has been the willingness on the part of the Fed to cut interest rates, the dollar falling to a historic low against the euro and robust economic growth in China and India. It has been the perfect storm for the commodity markets but tsunami for stocks and bonds.

This year did not begin with strong crude oil prices, a poker hot CRB index or any signs that inflation was a problem. The year actually began with crude oil prices falling more than $10 a barrel to just under $57.50 in the first two weeks of January. The weakness was shocking but short lived. From the low set in January to the highs set last month, crude oil prices nearly hit $100 a barrel, a rise of 54% for the year.

Needless to say, in January when crude was under $57.50 a barrel, forecasts of $100 a barrel seemed fanciful. But on November 21, only a month ago, when crude oil prices hit a record of $99.29, the consensus was that $100 crude was just around the corner. Some wild eyed bulls were predicting $110 to $120 a barrel by the Spring of '08.

This week ended with crude oil prices slipping 1.1% and futures closing at $91.27 a barrel. With two weeks left in '07, crude is $34 a barrel above the years worst levels and $8 a barrel below its all time historic high. Where will crude be in the months ahead?

My work shows that crude oil prices are on the cusp of falling to $80 a barrel, give or take a bit. The International Energy Agency, advisor to 27 industrialized countries on the other hand predicts that a rise in consumption in the Middle East will spark an increase in demand of 200,000 barrels per day for '08. Because of the IEA forecast, many are still calling for $100 crude and even higher prices in the New Year. Over the long run I can build a case for $100 plus crude oil. Over the short run, all my work suggests that prices will visit $80 a barrel, give or take a bit before triple digit prices are seen. And if my work is correct, the CRB index as well as other energy related markets such as corn for ethanol and soybean oil for bio fuel are also poised to endure a serious price correction in the near future.

A subtle hint that change is in the air for commodities came this week when the US dollar rose sharply to end at its best level in 7 weeks. A rally was long overdue because the dollar only a month ago was at a record low against euro. Despite the rally, few feel the greenback has legs to run much higher. The dollar still gets no respect! This year did not begin with a weak dollar. The year actually began with the dollar rising sharply in the first few weeks of January, peaking out around the 84.25 level. The rally was shocking but short lived and in late November, it dipped under the 75.00. It closed today at 77.40, a 7 week high but off 9% for the year.

In other words, in the first two weeks of '07, crude oil prices fell sharply while the greenback rallied just as sharply. Since then, the two markets have continued to move inverse of each other perfectly. Over the past month, crude oil prices are beginning to leak while the mighty US dollar regains its luster. All year, if the dollar rallied, crude declined and vice versa.

If the economy endures a further slowdown or a textbook recession, crude prices should weaken from current levels. Not collapse but weaken. Based on recent economic data the economy may show growth at a meager 1% while inflation is pegged at 4.3%. Slow growth with inflation is called stagflation.