Why the oil price means bubble trouble

Source: The Guardian

There are plenty of explanations for what's happening in the global oil markets. It's caused by the economic boom in the world's largest developing countries, particularly China and India. It's caused by the unwillingness of the oil cartel Opec to pump more crude. It's caused by the fact that the world has reached peak oil - the moment in our history where supplies of the black stuff start to dwindle.

All of these factors may have contributed to the upward trend in the oil price over the past six years, which has seen the cost of a barrel of crude rise from around $20 a barrel to $135 a barrel today. None of them really explain, however, why the price should have gone up by more than $5 in the past 24 hours and by a third in little more than a month. That sort of price action is the result of a speculative frenzy of the sort that was witnessed in the dotcom mania of the late 1990s. The oil market, to put it simply, is a massive bubble waiting to be popped.

Read more: http://www.guardian.co.uk/business/2008/may/22/oil.bubble.economics

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Like I've been saying to all the Pollyannas....It's a bubble just like the housing market was....

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/22/ccoil122.xml


US needs to produce more.....if it wasn't for those damn polar bears infesting Canada and the arctic circle ..... it could happen.

Commodities bubbles created by free market religion are not going to pop before capitalism pops. Soviet Union collapsed after Soviet Union hit their PO in the 80's, Global Capitalism to follow same route.

I think it is a well engineered plot to bring America to her knees. It is our fault, we've given them the tools. We have gorged ourselves on cheap oil for years, importing 60% or our needs at this point. We are adverse to conservation. Fiscal mismanagement by our elected Representatives for the past 60 years has driven up our debt load to the point our fiat money resembles a balloon with a hole in it. We've gone from a manufacturing power house to a country living with debt and refinancing it. Oil is now at or very close to peak production. Growing demand by the developing third world countries is absorbing any minimal downturn in consumption in the US.

The Islamic world controls much of crude production and we aren't too popular with some of the other producers. It doesn't take a genius to realize by minimal control on the market, with the above deficiencies, oil's cost to the United States will go up, adversely affecting our economy. In a world wide recession, the oil producers are most likely to come out with the least affected economy's.

the scumbags that occupy the White House have big ties to these speculating crooks. Clinton did break that runup in the 90s, as mentioned, by threatening to sell off big amounts of fuel from the Strategic reserve. The country could actually make money by selling at these high prices, then buy back at low. That would bankrupt a lot of hedge funds, and the whole thing would collapse to lower prices. But we are run by enemies of our country, and our congressional leadership is playing ball with them.

oil.

unless you want to ad that it is a plan to harness peak population and congress is playing ball with them

and has been substantially underpriced for years.

While people want desperately for this to be a bubble, unfortunately this is only the beginning.

Check out Krugman's take: The Oil Nonbubble

“The Oil Bubble: Set to Burst?” That was the headline of an October 2004 article in National Review, which argued that oil prices, then $50 a barrel, would soon collapse.

Ten months later, oil was selling for $70 a barrel. “It’s a huge bubble,” declared Steve Forbes, the publisher, who warned that the coming crash in oil prices would make the popping of the technology bubble “look like a picnic.”

Even if this were purely a financial play on the part of the speculators, it would have major consequences in the material world. Faced with higher prices, drivers would cut back on their driving; homeowners would turn down their thermostats; owners of marginal oil wells would put them back into production.

As a result, the initial balance between supply and demand would be broken, replaced with a situation in which supply exceeded demand. This excess supply would, in turn, drive prices back down again — unless someone were willing to buy up the excess and take it off the market.

The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding — an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling.

But it hasn’t happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels. This tells us that the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.

http://www.nytimes.com/2008/05/12/opinion/12krugman.html?_r=1&hp&oref=slogin