Has the Oil Price Bubble Popped?
In July, the price of crude oil reached an all time high of over $147 per barrel. Today, the price dipped below $90 per barrel in some markets.
In March I wrote a column in which I noted that several experts believed that oil markets were in the grip of a speculative bubble. Just one relevant quotation:
So what will happen to oil prices over the next few years? No one is predicting $10 per barrel oil. However, once the current bubble bursts, both Evans and Lynch believe that the price of crude will settle at around $60 to $70 per barrel in the next couple of years. "It's very hard to pinpoint just how long a bubble can expand before it breaks. Getting the timing right is not an easy matter," says Evans. But he adds, "I think that this is the riskiest time to be long in crude oil since 1980."
It turns out that people will buy less when the price rises. Who knew that the laws of supply and demand still work? (The possible advent of a worldwide recession doesn't hurt either.)
Note: I would like all those who sent me emails in June and July (and you know who are you are) demanding that I publicly admit that I was wrong in my March column to send me emails admitting that they were wrong about the $200 per barrel oil they were predicting was imminent. (wink)
*This looks more like a forest ranger tower than an oil derrick to me, but I liked the image anyway.
