November 5, 2007

THE DIFFERENCE BETWEEN THE HOUSING AND OIL BUBBLES...:

Oil's Recent Rise Not as Familiar as It Looks: Traders, Not Political or Supply Concerns, May Be Pushing Fuel Toward $100 (Steven Mufson, 11/05/07, Washington Post)

In the past 10 weeks, the price of crude oil has shot up $25 a barrel, closing at $95.93 in New York on Friday, near an all-time inflation-adjusted peak. Unlike earlier spikes in oil prices, which came on the heels of war in the Middle East, this latest ascent does not appear to be linked to any one conflict or to any physical shortage.

Instead, traders who treat oil like any other commodity are widely thought to be driving prices upward, bolstered by a weak dollar and money flowing out of stock markets and other investment vehicles. [...]

Many veteran oil analysts say this is a bubble. Oil is historically a cyclical business. Modestly higher production by the Organization of Petroleum Exporting Countries, a warm winter, slower U.S. economic growth and a flattening of demand in the United States could puncture these lofty prices.

"It just seems that the market is spasming here," said Adam Robinson, an oil analyst at Lehman Brothers. If slowly declining petroleum inventories start to build again, he said, "the radical increase we've seen to the upside can repeat on the way down." Oppenheimer & Sons analyst Fadel Gheit says oil is $30 a barrel overpriced.


Is that we've a shortage of the former and excess of the latter.

Posted by Orrin Judd at November 5, 2007 7:14 AM
Comments

If the dramatic increase in the price of oil doesn't lead to a significant decrease in consumption, why should the price drop? I'm with oj on this one. Gas is too cheap and consumption should be taxed to provide payroll tax relief.

Posted by: Patrick H at November 5, 2007 1:24 PM

Right on Patrick. And the Europeans are paying $50. shipping costs to import a ton of US coal that we're selling for $47. And we're selling them tons of it for their power plants, some of which are being converted back from gas. Will the invisible hand ever truly disappear?

Posted by: genecis at November 5, 2007 7:03 PM
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