What bubble? Every thinking citizen (and certainly every reporter) knows that U.S. foreign policy for many decades has been directed towards grabbing the ever-shrinking supply of oil....

If by "grabbing" you mean, um, "not grabbing."

And by shrinking mean growing

But is says right here on the first page of the primer that "It's All about Oil!"

I'm very confused.

Reviewing the history of oil-market boom and bust confirms that we are in the midst of a classic oil bubble and that prices will eventually fall, perhaps dramatically.

Note the word "eventually". Anyone can make an accurate prediction of future events by using this one magic word.

Despite apocalyptic warnings, the world is not running out of oil and the pumps are not going to run dry in our lifetimes--or ever.

Are we talking about crude oil in the ground, or oil extracted from coal & shale, or oil synthesized from biomass? As far as the first one goes, we are running out of that. That is the cheap stuff, and once its production relative to world demand falls off, oil will get more expensive as the marginal cost to extract the replacement sources will drive the price.

What's more, the mechanism that will surely prevent any long-term catastrophic shortages in energy is precisely the free-market incentive to make profits that many politicians in Washington seem to regard as an evil pursuit and wish to short circuit.

I agree that the profit motive will lead to new sources of energy, but don't agree that there is some kind of magical guarantee that we won't see any catastrophic shortages as the world switches over to the new sources. Shortages don't have to be long term to lead to a catastrophic economic crash. A major shortage that lasts 6 months could plunge the world into a depression.

"some kind of magical guarantee that we won't see any catastophic shortages..."

Robert --

Oil at every stage of production is a closely monitored commodity. If production declines, or even if the stuff ever becomes more expensive to locate and produce, such developments will be a gradual and well-documented. The markets would have decades to respond to the opportunities.

As for the bubble, it's already losing air. If oj succeeds in forcing us all onto a bus, you won't be able to give the stuff away.

Yes, curt, that is the "experts are in charge and won't let us down" refrain. We know how well that worked in the aftermath of Katrina. But you are mistaken that things are closely watched. Only the Saudis know for sure how much reserves they have, they won't let outside auditors confirm them. The OPEC system allocates production quotas by the percent of reserves a country has, and so it is advantageous for each country to skew their estimates to the high side.

And dropoffs in production won't be gradual when they come. The Saudis are using advanced production techniques to boost the ouput from their existing fields, including the injection of water into the underground cavity to increase pressure. This means that when a field starts to run dry, production will fall off sharply, instead of gradually in the case where these techniques are not used.

Paul Erlich proved that there is always a market for a plausible tale of doom, and Matt Simmons made a well-timed splash with his theories of problems and coverups on the part of our "friends" the Saudis. Most reasonable folks accept that there is actually much more oil in Saudi than currently proven. See http://www.eia.doe.gov/

Since all the oil in the grond is not the same price -- it can cost several multiples more to get oil out of some formations than it does out of others -- what is extracted often differs from what reserves are known. With oil hovering around the $20-$25 a barrel mark for many years, what was extracted was oil that could be removed for less than $20-$25 a barrel. Oil that cost $30, $35, $40 a barrel or more wasn't touched, because for some reason drillers and oil companies don't want to spend more to get the stuff out of the ground than they can get for it on the open market.

Now, with supplies tightening, what you've had happen is an over-reaction. With the price up the way it is, not only does $30, $35 and $40 oil become viable to extract, but the longer the time period it stays above the $55 range, the more likely it is companies will risk trying to extract oil that costs $50 or $55 to remove. But if bringing online the $30, $35 and $40 a barrel oil sources produces enough new sources to create a glut, then oil prices suddenly fall back to the real level the market will bear -- maybe not as low as $20-$25 a barrel again, but in the $25-$35 range, where some new oil sources remain in production, while others go back into hibernation until the next time the price warrants their revival.