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The Oil Bubble Debate
I was reading today on CNN a article that said that we are in a Oil bubble.
“Oil prices have doubled in the past 12 months, surging nearly $8 a barrel in the past four days alone.
Big investment funds are putting money into oil futures as if Saudi Arabia’s spigots will run dry tomorrow. At the same time, the supply of oil and the demand for it hasn’t changed much in the last year.
So it raises the question: Is $130 oil nothing more than one big bubble?”
For me this is completely mind boggling that we are at $4 a gallon of gas. For me it doesn’t make sense if you look at the historical data on average gas prices it seems to double every decade. Click here to see graph.
It is true that we are in a world that uses more gas. China and India are coming on line and a lot of the people are becoming middle class and buying cars. Here in the good ole United States we still have not curbed are consumption on gas.
Despite all this the price of oil should not be at $130 a barrel.
“After correctly predicting oil’s climb to more than $100 a barrel, legendary oilman Boone Pickens said Thursday he is shorting both the oil and natural gas markets in the belief that oil will stage a short-term pullback.
“I think oil’s going to back off,” he said, during an interview on “Squawk Box.”
“The weakest quarter is the second quarter. We’ll drop $10 or $15 a barrel in the second quarter. I think we’ll be back above $100 in the second half of the year.”
“I think natural gas prices are unusually high now, and I think they’re going to back off, also,” he added.”
What we are also seeing is future traders bidding up the price on the price of oil. The fact is that the demand and supply for gas has remained the same for the last year, but the price has risen from a little over $60 last year in May to $135. That means it took one year to double in price and in our history we have never seen that kind of jump.
The Oil Bubble is going to pop just like anything in a market place people are going to realize that it is over priced and even consumers are trying to cut back by buying more fuel efficient cars, riding the bus and trying to overall cut their gas bill. If demand decreases it means that we should see gas prices start to ease by the end of the year.
Predictions for the end of the year range from $65 a barrel for oil to $100. In my humble estimation I think that we are eventually going to see it settle between $85 and $95 by the end of the year.
