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Are We in the Peak of an Oil Bubble?

physorg.com — Since 2003, worldwide oil prices have quadrupled. According to a new study, the price of oil is rising at a faster-than-exponential rate, and cannot be sustained. In other words, we ’re in the midst of an oil bubble, say researchers. The recent oil price run-up has less to do with supply-demand interplay and more to do with speculation.

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Masternajee, on 07/07/2008, -4/+30We are in a bubble. Of course, the government will step in just as the tide would turn, thus keeping prices up.
- SkippyDoorknob, on 07/08/2008, -2/+7If they could keep a bubble from bursting then they would have kept the real estate bubble from popping
  - theJeebus, on 07/08/2008, -0/+6They caused the real estate bubble.
  - Fordi, on 07/09/2008, -0/+1Not exactly correct. The Fed (not an arm of the US Gov't) provided the conditions* that allowed bad banking decisions** which led to the real estate bubble.
    
    * Much lower interest rates than absolutely necessary, and a loosening of the reserve requirements
    ** Lending money to high-risk clients during a low interest period
- johnhummel, on 07/08/2008, -2/+16Or, the government will do what they should - remove the Enron loophole, prevent this speculation market from existing when it shouldn't, and enforce investigations into market manipulation - and then prices would go down as investors realize their ***** won't fly any more.
  
  Oh, wait - hold on OMGZ REGULATION - what was I thinking?
  - mbonnin, on 07/08/2008, -9/+3"OMGZ REGULATION"
    
    I find that the best way to get ones point across in a meaningful and credible manner is to use profanity and imbecilic phrases in abundance.
    
    Well played good sir. You are a true master of debate.
  - marx2k, on 07/08/2008, -0/+2Isn't the entire stock and commodities market based on speculation?
  - DoubtingThomas, on 07/08/2008, -1/+3Well, yes it is based on speculation. However, in traditional speculation which is what you are referring to, speculators are required to eventually take delivery and there are layers upon layers of accounatbility required on traders parts.
    
    With the Enron Loophole and these so called "dark" markets in which oil speculation operates there is little if any accountability for what goes on.
- clickwir, on 07/08/2008, -5/+3Honestly, I hope it stays up. I hope it goes up even a little bit more. Maybe then people will start to be more conservative with their driving and buy things that are more efficient. The blatant waste of SUV's and trucks is disgusting. And if it takes $5/gal for people to wake up and realize it, so be it.
  - SkippyDoorknob, on 07/08/2008, -1/+6This is destroying a lot of low income families who were barely getting along before. Now they can't afford to drive their small economy cars to work and can't afford the higher prices of groceries to feed their families. Be afraid of what you wish for. Just because you can afford it or have ways of cutting back doesn't mean everyone else does.
  - merlin5, on 07/08/2008, -7/+2Driving SUVs is not causing global warming.
    Industry/Millitary/Transportation consumes vastly more oil.
    Even if global warming were true, gasoline consumption changes would not impact it.
  - marx2k, on 07/08/2008, -0/+4merlin, no one mentioned global warming.
  - Trick07, on 07/08/2008, -2/+3SUV's and personal account for about 50% of the 28% of total usage in the USA. Do the the math and then explain how SUV's are the problem. It is bitter little un-informed dweebs like you who need to crawl out of your basement and see how the real world works instead of reading the latest SUV diatribe you find at moveon.org.
- EricAnderton, on 07/08/2008, -4/+3No, the FED will step in and push inflation along. Gas prices will appear to stabilize only because your *dollar* is getting cheaper, not the fuel.
  - kigcoopa84, on 07/08/2008, -0/+4If the dollar gets weaker then things don't appear to stabilize, the price goes up. Smart guy
- drewj05, on 07/08/2008, -6/+2There is not a bubble and speculation is not the cause of the price run up. If it were where there would be a huge stockpile of unused barrels. It simple economics, if the price is set higher than equilibrium then there would be an excess supply as producers produce too much.
  
  http://krugman.blogs.nytimes.com/2008/05/13/more-o ...
  http://www.economist.com/opinion/displayStory.cfm? ...
  http://www.newsweek.com/id/143786/page/1
  - oldgal, on 07/08/2008, -0/+2Unless, of course, you choose not to produce in order to drive the price even higher. If there were truly a shortage to substantiate the prices we are seeing, then gas stations would be running out of gas...as in the seventies when fully loaded oil tankers were sitting for days outside the golden gate and in San Francisco bay.
  - curtisag, on 07/10/2008, -0/+1You know nothing about economics. Everyone knows the elasticity of demand for oil is almost perfectly inelastic and the demand curve is very steep. That means you can raise the price drastically and you will see almost no decrease in the quantity demanded at the new price.
imacommi, on 07/07/2008, -5/+62I always trust the scientists more than the speculators.
- korvan504521, on 07/08/2008, -0/+8but the speculators are saying that speculation isn't the problem!!!
- neopolaris, on 07/08/2008, -7/+2Scientists can have a blinding agenda just like anyone else. They're no better and no more protected from corruption than anyone else.
  - LokitheComplex, on 07/08/2008, -1/+5So you would trust 100 marketers as much as 100 scientists?
  - oldgal, on 07/08/2008, -1/+2Yes, but if you can validate the data, then disproving what the scientists say is a matter of methodology.
  - hwy9nightkid, on 07/08/2008, -1/+1as a Scientist I have to take offense that I am put in the same bucket as market speculators. These people make their living off of market speculations. When someone is predicting a bubble, at the most they will be vying for grant money..but they do not need to work on speculations exclusively. I trust myself over anyone else, and I say this article is spot on.
- Calibur, on 07/08/2008, -0/+6Scientists give facts. Speculators ... well speculate on those facts. So choose your side.
  - Burgundy, on 07/08/2008, -1/+1Scientists also depend on funding. Scientists also get blinded by their own agendas and can bend results to fit their models. It goes both ways unfortunately.
Fangsinmybeard, on 07/07/2008, -6/+45I don't care so long as we get the point across that we have to abandon oil altogether.
- invasi0n, on 07/08/2008, -2/+8And what's gonna happen? A new product will take its place and the same bastards will control it.
  - Waiting2awake, on 07/08/2008, -0/+18Are you going to allow that after what we just witnessed? The great thing about renewable energy, and that which scares the power players, is that it can not generally be done from a single location. The days of owning a powerplant to feed energy to the masses are over.
    
    Renewable energy works incredibly well if it is used as a distributed system. That thousands of small producers feeding their overage into the grid. See how Germany did it.
  - Atomic1fire, on 07/10/2008, -0/+1Nothing can replace everything oil does
    Thats why I say use as many methods as possible, natural or unnatural
    New businesses will sprout up looking for these alternitives, or old ones allready using them and the economy could go up from the production of multiple products and the purchase of them
    require competition in these markets to keep prices low and you have a good economy no longer based on oil
- kinerry, on 07/08/2008, -2/+2Sorry, we're always going to need to lubricate machinery, so give up that pipe dream
  - B1663r, on 07/08/2008, -0/+5So use vegetable oil...
  - duewydo, on 07/08/2008, -0/+3There are methods to produce lubricating oil from other sources, other than crude. But you are right, oil is WAY to integrated into our production systems to just rid of.
  - thatspsychotic, on 07/08/2008, -0/+3Roughly 70% of crude consumed by the US is burned in transportation (according to the National Commission on Energy Policy). When we talk about getting rid of oil, it's pretty obvious that we're not talking about banning WD-40.
  - BESTenemy, on 07/08/2008, -0/+1Oil is fuel, electrical energy, industrial lubricants, plastics, pesticides, pavement, synthetic textile, fertilizers, heating oil etc. Absolutely nothing can substitute all those things. The best thing we can do is provide alternative energy sources, which means we have to invest more of that expensive alternatives into synthesis and recycling of materials that normally came off as oil refinement byproducts. If a solar panels or a wind turbines had to supply power to fully cover their own production (including material mining), the net energy at the end would be zero.
    
    We can replace less than 10% of oil economy's energy demands with renewables, and that's the easy part. Replacing every other luxury that oil use provides would completely drive us into the ground, reducign spare energy capacity to the point of sustainable insolvency.
- darkened, on 07/08/2008, -1/+8Buried for idiocy, oil is arguably the most important substance on this planet as it's integrated to every portion of our lives from fuel to energy to plastics. Now should you have said we need to lessen our dependence on it as ENERGY, I would surely have agreed. Oil is too precious of a material to continue wasting to be burned.
- dupeduperson, on 07/08/2008, -0/+1I agree that we need to move past oil. But the problem is, who is feeling the prices the most? Its the lower class that has no option but to pay high prices for gas. I often see people say "well, they should live close to where they work. They should buy a hybrid." If you don't have a lot of spare income, you can't just move or get a new car.
  - smoger, on 07/08/2008, -0/+2..and even if some of us move, it wouldnt make a huge difference. i live in the city, and work in the suburbs. i can walk almost to anything around my neighborhood.. restaurants, banks, supermarket. i drive 30 miles to work. but if i lived near work, i'd need to drive 5-10 miles to get to any type of supermarket/bar/restaurant/bank
  - marx2k, on 07/08/2008, -0/+1Sounds like you'd be saving yourself about 60 miles every day except the 20 miles on days you'd need to go to the supermarket/bar (driving to the bar?)/restaurant/bank
ZZeke, on 07/07/2008, -8/+54Whether you subscribe to "peak oil" theory or not, it has absolutely nothing to do with current oil/gas pricing. The Saudis have made it crystal clear that this is not a supply/demand problem. For once, I completely trust them in their blunt analysis. I tend to believe that the current ***** oil bubble is being propped up in order to recover losses from the ***** housing bubble. Wall street can no longer sustain itself without "bubbling" one sector or another, and average profits just aren't enough to keep the wall street monster from going hungry. Only astronomical profit margins will do, and oil/gas is a no-brainer, because we will continue to pay no matter the cost.

Let's get real, folks - what did you think would happen when we allowed an oil man into the oval office?
- B1663r, on 07/08/2008, -2/+3I think that no major oil fields have been found in 30+ years, and while there is plenty of oil left, what is there costs more to produce. I think the significant shift away from oil that is occurring now during an oil president, is circumstantial evidence that the oil is indeed running out.
  - ZZeke, on 07/08/2008, -0/+3"significant shift'?
    Besides the media lip service and the proposed global carbon taxes coming from the cult of man-made global warming, I see no "significant shift" from oil whatsoever. A few hybrid cars and wind turbines are not gonna cut it. The only shifting I see is the shift in America's psyche, and the shifting of more of our hard earned $$$ into the bank accounts of the oil tycoons.
    Show me a fortune 500 company which doesn't use diesel to ship it's goods, or show me a corporate farming outfit which doesn't use fossil fuels as it's primary energy source, and we'll talk about a "shift". Until then, the "shift" is in your head.
    
    I'm all for "alternative" energy sources - as long as they're not brought to us by Exxon/Mobil/Shell/BP etc - who says that the current energy suppliers get the rights to supply the next energy source? Haven't we been captive to these feudal lords long enough? If it weren't for all the oil companies who stand so much to lose with alternative energy sources to begin with, we probably could have started changing our ways 50 years ago.
  - greensky, on 07/08/2008, -1/+2Actually Brazil has made some major finds, but they are pretty deep under the ocean. We'll have oil, it's just going to be harder/more costly to get to.
  - B1663r, on 07/08/2008, -2/+1Lol, 1/3 of the entire corn crop goes to ethanol now, and it basically didn't exist 4 years ago, but there is no significant shift. ROFL.
    
    I don't think that means what you think it means..
  - diggenerate, on 07/08/2008, -2/+2Oil is not running out. Sure it will run out eventually but like the Saudis said, this is not a supply vs. demand issue. OPEC - The Organization of the Petroleum Exporting Countries - is a cartel that controls the price of oil. Oil prices have risen world wide because they want it to, and companies like Haliburton and "people" like Cheney and Bush want to keep it that way, because they stand to make large sums of money. Our country has vast amounts of oil underground in the southern mid-west and Alaska that we could tap but won't because it is much more profitable for Big Oil to import oil. Remember the so called oil shortages in the 70's, that was a lie. That is the time the oil wells in our country (USA) were capped and we became dependent on foreign oil interests.
  - kaplanfx, on 07/08/2008, -0/+3The supply didn't suddenly change drastically between Dec 07 and now (a time during which oil prices have doubled). Sure we know that oil is exhaustible, but this sudden increase in price is based on people guessing at future supply and demand, and has little to do with current supply/demand realities. So yes, it is speculation, yes oil is an overprice bubble, and when future supply doesn't skyrocket as projected, cheap oil will flood the market.
  - oldgal, on 07/08/2008, -0/+1Wanna buy a bridge?
  - ZZeke, on 07/09/2008, -0/+1@B1663r - Ethanol? RU kidding me? Don't you know it takes more than a gallon of diesel to produce a gallon of ethanol? Where's the shift? Corn based ethanol is nothing but a distraction.
- darkened, on 07/08/2008, -0/+5Not running out, but running out of cheap $30 a barrel oil. The planet has plenty of oil it's just not as cost minimal to attain new sources as it was during the middle of the prior century.
  - ZZeke, on 07/08/2008, -0/+1I'll buy that...but I will never be convinced that it's worth what Wall street tells us it is - even when it was 30$ a barrel.
  - kaplanfx, on 07/08/2008, -0/+1I've seen oil as difficult to extract as tar sands and shale at estimated costs of ~$70-$80 a barrel after extraction. This means that the current $140 a barrel is significantly overvalued for even difficult to extract oil. And most of it is light sweet crude, so clearly oil is waaay overpriced right now.
  - ZZeke, on 07/10/2008, -0/+1That's exactly what I'm saying - We keep hearing about the fact that in order to get more oil, it really is going to cost more to get at it. I have no problem with that, if we're to continue pursuing oil - but, just because we're hearing about it, doesn't mean that they're even pumping a lot of this "hard-to-get" oil yet. I'm no expert, but I'm guessing that the majority of the oil we pump or buy is still coming from easier places, and the oil co.'s have been doing this for a long time and are quite efficient at it by now. They're just building us up so we absorb the whole cost for developing the deeper and tougher fields for production, and their bottom lines can still keep up with wall street and inflation. Add to that the need for greed coming from wall street, and the current political situation in the Middle East (which has been dominated by the oil industry for generations now), and we get caught in the middle, paying not only for the oil industries' development, but also a whole bunch of retirement homes, private jets and yachts, and golden parachutes....while we also fund the war for more oil profits every day with our tax dollars.
    I'm all for responsible industrial development, but not at the expense of millions of lives, and not for the personal benefit of thousands of greedy bankers and brokers.
    We're getting *****, and everyone knows it. The only positive thing about it is that ***** never sustains itself forever, so eventually things will have to change. Unfortunately, it seems as if things are not going to change for the better anytime soon.
- girwen, on 07/09/2008, -0/+1what did you think would happen when we allowed an oil man into the oval office?
  
  An oil man who screwed up three oil companies? I can't imagine what could happen
Sanduu, on 07/08/2008, -6/+13Let's get all green and oil will get cheaper.
- dinobot, on 07/08/2008, -2/+6I'm for it, as long as its not ethanol
  - CorneliusStump, on 07/08/2008, -0/+13i'm for ethanol, but only if its raw materials come directly from the hands starving african children
  - billbugger, on 07/08/2008, -0/+3kudzu, switchgrass
  - dinobot, on 07/08/2008, -0/+1should have stated ethanol made with what we use for food
- zacharytelschow, on 07/08/2008, -0/+2I'll start walking to work right after you do.
dinobot, on 07/08/2008, -4/+11I remember some analyst for CNBC mentioning that speculators were not the reason of the oil's obscene price hike, and instead it was a matter of supply and demand (something the OPEC leaders had already previously said were not the true reasons for the current price trends) - of course, most than likely he is one of those speculators with the majority of his portfolio invested in oil futures, so, of course he is not going to put the blame on himself and those of his ilk.
- Aliwalla, on 07/08/2008, -0/+3Of course a CNBC analyst is going to say that, wall street/the city doesn't want to be told that its their fault we're in this mess. There is something like 150 billion USD betting on increases in the price of oil that's come out of hedge funds/pension funds/investment banks, you'd have to be either stupid or a liar with intrinsic interests in a higher price and no backlash against speculators to state that speculation hasn't had a massive impact on the price of oil over the past 2 years.
- monkeyrun, on 07/08/2008, -0/+3lol analysts ARE just speculators.
  
  What do analysts do all day long, they speculate.
wynja, on 07/08/2008, -4/+2duh
rollaryne, on 07/08/2008, -2/+13This breaks down into to core arguments: supply v. demand and speculation.

A number of people point to the demand from China and India driving the cost up exponentially over the last 3 years. Problem with this view is that OPCE, and the Saudis independent of OPCE, have increased production a number of times so that supply has been exceeding demand.

What is new to the futures (Oil) world is institutional investors (read speculation). Demand had been growing due to the growth of China and India, and the institutional investors jumped on the band wagon in 2004/2005, China and India leveled out and forgot to tell the investors.

In reality, both arguments are right. This is a bubble caused by increased demand. The demand has pulled back, but the futures market is still greedy and continues to put the price up.

Also, good reading can be found here: http://hsgac.senate.gov/public/_files/052008Master ...
- doiveo, on 07/08/2008, -1/+0Can you show me the data to suggest supply exceeds demand?
  
  According to that graph, demand has exceeded supply since 2006. Then there's this...
  
  http://www.eia.doe.gov/steo#Global_Petroleum_Marke ...
  - rollaryne, on 07/08/2008, -0/+0Hi,
    
    Well, the article states their research reflects supply greater than demand "most recently". I had also read a DOE report within the last week - but I need to find it.
    
    RR
  - doiveo, on 07/09/2008, -0/+0Ya, I read that too but clearly the graph shows demand has some distance on the supply which confused me. If one is going to write about a downward trend, the figures in the article should really be supportive. I would like to see demand go down and release some price pressure. I read recently that demand in NA has decreased significantly but increases elsewhere have made up the differences and then some.
- marx2k, on 07/08/2008, -0/+2You're also forgetting the fact that the dollar is going the way of the rupee
  - rollaryne, on 07/08/2008, -0/+0This is also a good point, one I've believed for some time, but a number of analysts have recently stated the falling dollar isn't playing that much into price.
    
    *I* don't understand how that can be....
CorneliusStump, on 07/08/2008, -0/+5Hasn't this been said every year since the 1970s
- diggydougie, on 07/08/2008, -0/+2No. I am amazed that we did not learn anything from the 1970s. I still remember, but it seems like very few others have. Before this bubble whenever there was a reference to the 1970s oil crisis in the news or a documentary they would make it look nostalgic, and talk along the lines of "thank god that's over". The big push for alternative sources fizzled once the oil resumed flowing. Once this bubble pops the same will happen again.
  - marx2k, on 07/08/2008, -0/+3Unfortunately, I think you are absolutely right. I bet there's even evidence that can be found right now as to the correctness of your statement. I bet that any time there is an appreciable drop in oil prices or prices at the pump, even if it's for a week or two, there is an equal rise in gas guzzler sales.
- BESTenemy, on 07/08/2008, -1/+41930's saw the peak in oil well discovery in the US. 1970 saw the peak oil production in the US (with every following year more oil being imported to compensate for the lack of domestic supply). Today over 60% of our oil is imported. 2010 is marked by most analysts as the peak for global oil production. Some believe that we are already in it. Every following year cheap oil becomes rapidly less accessible. In order for the oil to be a viable source of energy it has to take fewer barrels to extract more barrels. We don't have to run out of oil completely, but simply have to reach the point where it's too expensive to extract, and that point is sooner than you think.
- XZanatos, on 07/08/2008, -0/+2Every year since 1970 they have also been saying that the new millennium would come in 2001. Guess what? They were right every year. The world prediction for 'peak oil' has been consistently within the 2004 to 2012 time frame since the 1970s. Go ahead and look it up.
  - CorneliusStump, on 07/09/2008, -0/+2no, i won't
o0joshua0o, on 07/08/2008, -0/+2So do I buy short or long positions on oil right now?
- tcpip4lyfe, on 07/08/2008, -0/+3short
- mrswirl, on 07/08/2008, -0/+2Long for the time being but be ready to short it very quickly. I predict the pop will happen at the end of this summer and the slide will start just as elections start to heat up.
Cadenzah, on 07/08/2008, -6/+4If you think the oil price is rising because of speculation, watch this please:
http://www.youtube.com/watch?v=6oGAX1g60HU
- tcpip4lyfe, on 07/08/2008, -4/+5But Obama says it's because of speculation. This sound logic cannot be true.
imightbewrong, on 07/08/2008, -1/+8Thats a horrible graph for so many different reasons
- rizla420, on 07/08/2008, -1/+2Such as?
amed, on 07/08/2008, -3/+3unless China and India decide to re-adopt the good ol bike , this pick is not going away anytime soon
- mulling, on 07/08/2008, -0/+6lol you've never been to china, have you? bikes are more popular than rice there.
  - marx2k, on 07/08/2008, -0/+1Unfortunately, as cheap cars begin to flood the market and the wealth of China rises, cars will (have?) become more popular than bikes. So now or very soon: cars > bikes > rice
chrissku, on 07/08/2008, -4/+5I think I know who is consuming all of our oil.

http://sanseverything.files.wordpress.com/2007/11/ ...
- marx2k, on 07/08/2008, -1/+1That's not even funny.
musicmanryan, on 07/08/2008, -5/+18Yes the bubble will pop, so instead of having $5/gal gas, we get $4/gal gas. Big f-ing deal. My hope is that the price keeps going up so as to cause a fundamental change in our petroleum-based society.
- hardD, on 07/08/2008, -5/+9I hope that the prices go down so i can get a SUV and not give a *****.
- diggydougie, on 07/08/2008, -0/+3I was watching a show the other day where the guy was amazed that gas was up to 2.00. That was high then, and so should still be high. As it stands, if the price goes down to 3.00 everyone will be dancing in the streets not thinking that it's still a rip off.
- zacharytelschow, on 07/08/2008, -0/+6"My hope is that the price keeps going up so as to cause a fundamental change in our petroleum-based society."
  
  Unless an alternative is found, the "change" you're referring to is simply a dramatic decrease in the standard of living.
  - musicmanryan, on 07/08/2008, -0/+2Necessity is the mother of invention. Hopefully that is right in this case, but if not you're probably right.
- BESTenemy, on 07/08/2008, -0/+3Asia is quickly surpassing us as the lead consumer of fossil fuels and they don't plan to slow down any time soon. They've got resource rich but capital deprived Russia to keep them company.
- clickwir, on 07/08/2008, -1/+3Agreed. America has such wasteful SUV's and big trucks. It's completely awful.
  
  No consumer vehicle should get less than 25MPG highway. If it doesn't then it's either because it's too big for what's really needed or a 70 year old junker that was made when there was an unlimited supply of fuel.
  
  Stop buying SUV's.
  - republicker, on 07/08/2008, -2/+3The world economy depends on trucks, No trucks= No food. You dont think that a head of lettuce or a tomato makes it out of the field in the back of a Prius, do you? Come back from the fantasy your life has become. Most people cant afford another energy efficient car. Most dealer are not even taking trucks as trade-ins anymore. Loan companies are ceasing to give loans to people who are underneath their current loan. Not to mention if I were going to buy a car that raised my gas milege but 10 mpg, I would be in the same boat when gas rises another 2 bucks. Until they havea car that runs on water the consumer will always be screwed no matter what.
mulling, on 07/08/2008, -1/+6If this keeps up, the next things to go up in price will be canned food, shotguns, and bicycles.
- marx2k, on 07/08/2008, -0/+1Scooters and motorcycles haven't moved in price yet. I heard small cars have though.
XBunnyRacer, on 07/08/2008, -3/+5This is the problem with capitalism.. You have to go for it 100% and let the markets decided the prices of things.. If you allow the gov't and people like speculators get involved, things get totally ***** up..
- kinerry, on 07/08/2008, -0/+1It also really sucks when things correct, that's what the great depression was all about
  
  You need both, but not too much of either
- theJeebus, on 07/08/2008, -0/+1But that's not a problem of capitalism, but rather a problem of government.
- provost, on 07/08/2008, -0/+1this is not a criticism, but an actual question, so dont read sarcasm into this. Wouldn't speculation be classified as actually a part of capitalism?
  
  The problem that I see is that I believe it is, and it needs to be regulated to prevent run-away misuse of capitalism like what is happening now.
AlwaysDuggDown, on 07/08/2008, -0/+6Early speculators got rich, late speculators get blamed and go broke.

You always know you are at the top (or bottom) when the government starts stepping in.
kh99, on 07/08/2008, -0/+10"Further, the models showed that the bubble is close to a local peak, and we may have even reached the peak already. On the other hand, the researchers noted, this critical peak may also be embedded in a larger-scale bubble, one that could develop in the coming months and years."

In other words, they don't really know anything.
zacharytelschow, on 07/08/2008, -2/+7Bubles pop. This probably won't. With worldwide demand increasing and supplies remaining steady, prices will continue to rise. Bear in mind, as well, that if this was a speculation-driven bubble, there would be surplus supplies laying around. There aren't.
- duewydo, on 07/08/2008, -0/+4I think you are right. This is a bubble but its timing is poor, since the demand is increasing as we are reaching a production peak, or past one. So it may never pop just level out for a while before it baloons again. About your comment on surplus supplies, I remember listening to an NPR show about a year ago on how speculative pricing was limited because there is limited storage, but have since been reading more about how storage has been expanding. I wonder how that affects all of this...
  - theJeebus, on 07/08/2008, -2/+0A bubble is *always* caused by increased demand.
  - mrswirl, on 07/08/2008, -0/+2"A bubble is *always* caused by increased demand."
    
    This is true but in this case, the demand is perceived rather than actual. We're talking oil 'futures' here - not the actual oil itself (in the physical sense).
    
    The speculators here that are driving up oil futures are only trading pieces of paper - oil contracts for future delivery. Yes, contracts come due for delivery eventually but by then the speculators have long since dissolved their positions by moving the contracts down to the refineries/pipeline companies/etc while retaining the profits inherit in the inflated price.
    
    This makes this bubble somewhat unique in that the physical asset is disassociated from the market price at the point where the trading is most volatile. Unlike in housing where buyers actually took possession of the asset itself.
- Zain123, on 07/08/2008, -0/+3The demand for gasoline is inelastic, so even if this rise in prices is speculation-driven, there wouldn't necessarily be a surplus of supplies.
- Tehrab, on 07/08/2008, -1/+1You do realize that until the gov't decided it needed to do something BECAUSE of the prices (read: not because of supply issues), that we were continuing to service our national reserve (AKA, the surplus), right?
  
  The government made the choice it made to kind of force the market's hand and use supply to trump the force of speculation. Supplies are still bountiful as we are at PEAK oil, not the end of oil. Meaning we are at the highest possible output from known reserves and will decline from here on out, it doesn't mean we instantly dry up. Hence the speculators, assuming demand will surpass supply soon, want to profit from that supply/demand action but in so doing, create oddball market movements of their own.
  
  Couple those forces with the decreasing value of the dollar, and boom, $140/barrel. Supply and demand has a tiny role to play here, it is the speculators (hedge fund operators, institutional funds, etc.) who are making the ASSUMPTION that there MIGHT be supply/demand issues and jumping on the market.
- provost, on 07/08/2008, -0/+1also.. our reserves are higher than they have ever been.. ever. We do have it sitting around.
- mrswirl, on 07/08/2008, -0/+1Markets move based on fear and greed. it really is as simple as that.
  
  Fears that supply *might* decline sometime in the future and greed in the sense of taking as much profit from the volatility while they can.
  
  The bubble will pop and the herd will move along to the next field like a swarm of locusts. Rinse and repeat.
brainscab, on 07/08/2008, -2/+5I should have invested in oil as soon as a Texas oilman got into office
- korvan504521, on 07/08/2008, -0/+2I don't think you can buy futures for that far ahead. However, even if you'd starting buying them last january you'd still be doing quite well.
- provost, on 07/08/2008, -1/+3i wouldnt blame youself. He is a miserable failure as an oil man. Every oil investment he made previous to this was a total failure just like everything else he has done is in pathetic life. So I wouldnt have bet on him being responsible for this.
  
  However, Cheney and Rice are huge in big oil (rice even has an oil tanker named after her). Them combined with the PNAC folks that got us into the war to begin with.. thats something I should have used as a telltale sign to have seen this coming.
legendxx, on 07/08/2008, -6/+10How can this be? Diggers love to rising oil prices as evidence that the United States is doomed to come crashing down next month. What they don't understand is that everything about this country and the way it works is a cycle. Your common digger claims to be informed.. what he really means is that he reads every sensationalist article on digg and somehow believes he is given a clearer view of the world than that of any of your major news networks.

You're all a joke. Open a history or economics book for once in your life and do a little research before making an asshat comment on digg about how the end of the world is upon us b/c of $4.15 gas prices.
- krische, on 07/08/2008, -0/+5Thank you for telling it like it is. Everyone seems to hop on the Armageddon bandwagon here. Give me a break, the US has survived plenty of wars, recessions, and even the great depression.
  
  I have a feeling all of the protesters of the Vietnam war and the farmers that lost everything in the Great Depression were saying the exact same things that these diggers are saying today.
- korvan504521, on 07/08/2008, -0/+2all of this has happened before, and will happen again.
ThrstForKnwldge, on 07/08/2008, -3/+6Devaluation of the dollar plus Iraq War equals higher oil prices.
GutterBall1200, on 07/08/2008, -3/+8Throughout history, the only real way to get filthy rich is to rob, steal and cheat the common folk. Just look at the Robber Baron's as examples [http://tinyurl.com/kn8am]. We see this today w/ Wall Street insiders. They need an industry/sector to exploit loop holes and cheat us. First tech, then housing, now oil and probably food commodities. Once one area is regulated, they will find (and/or with the help of legislation) a way to rob us. Otherwise, how much money can really make by being honest and hard working :-/
- marx2k, on 07/08/2008, -0/+1How were people cheated with the housing issue?
logic07, on 07/08/2008, -4/+10A bubble inflated by our fed though the act of printing money.
- theJeebus, on 07/08/2008, -1/+0So true. The after shocks of the real estate bubble, caused by printing of money.
- krische, on 07/08/2008, -0/+4We've been making our own money since we've been a country. I fail to see your point.
  - rizla420, on 07/08/2008, -1/+1no ***** sherlock, but its how the money is valued and what the basis of it is. Back in the dizzay, it was regulated by how much gold was in the mint. Now... nothing. Fiat currency. Make up a number, get everyone to agree, and thats that.
  - krische, on 07/08/2008, -1/+1The dollar hasn't gold-backed for almost 4 decades. This isn't something new.
diggydougie, on 07/08/2008, -2/+2What does it cost to produce the oil? I once heard something like $20.00/bbl. Where is all the money going? If it's going to investors then just wait for another bubble to boil up.
- korvan504521, on 07/08/2008, -0/+1cost of oil is dependent on the source involved. Oil sands oil is more expensive than oil out of the ground. but you also have to consider the type of oil, the poorer the grade, the more refinement is required. Much of the world's easier to refine oil is used up, and what we have left is harder to refine. new refineries should be built that are more targeted at the type of oil we get off the market now, as well as increasing our capacity. That's even less likely to happen than drilling off the Florida coast however.
  - praeludium, on 07/08/2008, -0/+0This is not entirely true. We have actually exploited a great deal of hard-to-get oil while much of the easy oil is still locked up by OPEC. The cartel has kept prices artificially high, which makes it profitable for Western companies to drill in areas that are harder to reach. You are describing a typical market, but what has happened in the oil markets since the creation of OPEC has been a market inversion. Because of that inversion, the consumer has no reliable price indicators to know when supply is tightening up - at least, not until it's too late.
  - kaplanfx, on 07/08/2008, -0/+2I've heard estimates that last barrel oil (that which is most difficult to extract) is still estimated to be less that $100 per barrel once production is up and running. This means that we are already at least $40 over the last barrel price and we still have a few decades of light sweet crude left.
digghasnoethics, on 07/08/2008, -3/+3This 'analysis' is nothing of the sort - junk economist bull. We are currently at the low point of a speculative dip. Expect $150 within the month.
- kaplanfx, on 07/08/2008, -0/+1haha, go ahead an purchase oil futures long, I dare you.
- RationalXubrnce, on 07/08/2008, -0/+1 Make sure you bookmark this post. It wouldn't be the first time that the poster getting laughed at and dugg down was right.
scamper22, on 07/08/2008, -2/+3of course it's a bubble. That's what happens when you try to 'stimulate' an economy as they did post 911. Flood the market with money. But who gets the money? Me and you? Heck no, the big investment firms and banks get access to all the cheap money. Where do they put it?

Do they keep it in cash with a devaluing US dollar? That would just be stupid.
So they find places for it. They dump it into oil. They dump it into every safe.

The middle class gets screwed for a few years while some people get rich. Then the bubble collapses wiping out savings.

Really have no fear. The solution to the problem is to stimulate the economy. Rinse repeat until you reach bankruptcy.
- JointVenture, on 07/08/2008, -1/+1Get a job *****. Earn your money.
laserdog, on 07/08/2008, -0/+3Hrm the use of "Peak" in this write-up is highly confusing.

What the article is saying is that they think the price of oil has reached a peak, not the supply.

This has nothing to do with theory of "Peak Oil" (as I thought when I clicked through), but in fact is saying that evidence points towards the opposite, that this is a speculation bubble, and not a function of supply vs demand.
neopolaris, on 07/08/2008, -5/+5"Peak" oil is a fraud. This world is awash with oil.
- honthraj, on 07/08/2008, -2/+3Can you tell us how you know the world is awash with oil? Do you have figures and locations to accompany your claim?
  - dirigibleduck, on 07/08/2008, -0/+1There are no signs that oil is simply "drying up." A huge new oil field was just discovered off the coast of Brazil. Russia and Saudi Arabia still have oil fields that they haven't touched. There is plenty of unexplored oil up in the Arctic.
    
    The problem is that it is getting more and more expensive to develop these fields, and they can take decades to start producing. In the meantime, developing countries are in need of more oil as their middle classes grow, and between supply/demand and speculative investors, the price of oil keeps rising.
  - praeludium, on 07/08/2008, -0/+2That Brazilian oil field is between 5 and 8 billion barrels. Contrast that with Saudi Arabia's Ghawar field, which had (in the '70s) about 170 billion barrels. There simply aren't any more discoveries left of that degree, and what we have discovered is rapidly being exploited (the Ghawar field, for example, has 70 billion barrels left). That might seem like plenty, but the world is using something on the order of 87 million barrels per day.
    
    Peak oil is most unfortunately a real phenomenon. It already happened in the United States in the 70s - back in the day, the US was, believe it not, the biggest producer of oil. Now the worry is about worldwide peak oil, not on a country-by-country basis. But many geologists think OPEC peak oil is near-at-hand, meaning things could get a lot worse.
LogicBomB, on 07/08/2008, -1/+3Oil bubbles don't burst.
Musicmonkey34, on 07/08/2008, -0/+3"faster than exponential rate"? I seriously, seriously, doubt that. Did they mean faster than ^2? Because ^999999999 is also exponential rate, yet gas still costs less than my house.
- kh99, on 07/08/2008, -0/+0There is something that's called "greater than exponential growth", but it doesn't mean "greater than the greatest exponent you can think of". If I understood it well enough I'd try to explain it, but I don't.
- veriix, on 07/08/2008, -0/+1That really depends on how much gas you're talking about. Is you're house worth more then 900,000 gallons of gas?
- Musicmonkey34, on 07/09/2008, -0/+0@verlix, only 899,000, sadly.
Nubli, on 07/08/2008, -0/+4Supply and Demand are playing a large role in the oil price increase globally, but what is causing it to skyrocket in the US is the value of the dollar dropping as well.
DeFex, on 07/08/2008, -0/+1try starting both sides of the graph from zero,
woodrow8292, on 07/08/2008, -0/+3How about the fact that the dollar is plummeting in value on world markets, oil is trade in US dollars. So as the value of the dollar goes down the price of oil goes up. That's a reason many people fail to mention when talking about the price of oil. Blame it on this blame it on that but as long as the dollar is weak oil will be high.
- kh99, on 07/08/2008, -0/+0Well, the article does say that they accounted for that.
- RationalXubrnce, on 07/08/2008, -0/+1 Oil has gone from $30 a barrel to $140 dollars a barrel in less than a decade. The currency has not inflated almost 500% in that time. Therefore there are other factors much larger than the declining dollar.
legolas68, on 07/08/2008, -4/+3The price of foreign oil is high because the US refuses to drill in its own backyard and the Saudis, OPEC, and the speculators know it. Americans are starving while sitting on a ham sandwich.

DRILL NOW. DRILL OFTEN.

Once OPEC sees that the United States is willing to tap its own resources they will flood the market attempting to unload everything they can in the wake of lower demand. At this point the speculators will take their profit in their futures contracts and a barrel of oil will cost $40.
- provost, on 07/08/2008, -0/+1Dude, havent you been educated on this yet? The oil companies have millions of acres of leases. They DONT want to drill because supply is meeting demand and they are only running at 80% capacity. The only lease requested in the last 44 years to drill was granted. They are sitting on the land because its money in the bank for later. It will be worth more later than it will now.
  
  Aside from that drilling into say, alaska.. will take 10 years to reach peak where it will drop the price of gasoline and onle then it would drop by roughly 3 cents.
  
  Anyone who knows the real numbers and facts behind the trivia knows that the concept of 'let the oil companies drill' is just a ploy to give mineral rights to the companies that will not actually drill in it. They will just sit on it because its worth more in the ground than it is in a barrel to them.
  
  80million acres of leases. 10million acres of active drilling. I think they have enough land to drill on.
  - specialbuddy1, on 07/09/2008, -1/+1Just because you have leases doesn't mean there is oil or gas in the ground. The only way you can sell up those leases is if you have proof of production.
  - legolas68, on 07/09/2008, -0/+1Didn't the dems try some hearings a couple months ago to try to prove this point? You'd think Harry Reid would have found the plot instantly. He didn't find the plot because there is none. Apparently I have been educated further than you.
    
    Aside from that, if we would have ignored your argument about Alaska 10 years ago when this first came up we wouldn't be in the pickle we are in now.
  - provost, on 07/09/2008, -0/+1first of all, the findings in the hearing are exactly what I quoted. Having a hearing in the judiciary doesnt mean that suddenly the oil companies are in jail or something. Its just a finding.
    
    Second of all, ooh.. gas would be 3 cents cheaper. Yes, that would definitely get us out of the bind. I can just imagine a parallel universe where the average driver is only paying 430 for gas and not 433.
    
    You obviously don't get it. The oil companies don't want to DRILL in ANWAR. They just want exclusive rights to the land. Noone will be drilling. If you don't believe me, then research the facts I laid out. ONE ***** lease was requested and granted in the last 40 years. During that time they increased the amount of land they had rights to by something like 40%.
- Evicted, on 07/08/2008, -0/+1The united states already gets more oil from its backyard than all the OPEC countries combined. That backyard is called Canada.
- omegared, on 07/08/2008, -0/+1why would opec flood the market with oil, if the USA started drilling? They would likely cut back on production, so the price of oil does not drop by to much. Why would oil companies want oil to fall to $40, and what reason do they have to bring on more production if the price is dropping and there is more supply than demand? Your logic is flawed and more wishful than truths.
  - legolas68, on 07/09/2008, -0/+1The Saudi and Iranian economies are fed entirely by oil. They are trying now to diversify their economy because of the threat of a drop in demand fueled by domestic drilling. When a customer who buys 40% of your product threatens to make his own you tend to perk up and diversify or find another customer to fill the niche. In the meantime you sell him all you can before he stops coming to the door. That is the logic.
Truzseeker, on 07/08/2008, -3/+3buried...oil is metamorphic and some being current rediscovered in the same place
- specialbuddy1, on 07/09/2008, -0/+1Sure it will come back but it won't produce much. The engineers that I have worked with told me that well production always goes down over time and will never produce as well as it did at it's peak. So keep thinking that it will save us because abandoned wells usually stay abandoned.
ElDiablo6870, on 07/08/2008, -1/+3I work for a Bank in comercial lending. Two years ago we were approving oil industry loans based on $15 lift cost and $30 oil and that was when oil was $45 bbl. So, let assume the cost of drilling has doubled in 3 years. Even at that, the lift cost would be about $30 and oil should sell for less than $40bbl. So, yes, what we are seeing is an oil bubble. Once we increase supply, or do most anything to spook speculators, the price of oil will come down.
salinemist, on 07/08/2008, -2/+4This bubble will pop right after the US and/or Israel attack Iran and Iran attempts to shut down the Strait of Hormuz.
Ransack, on 07/08/2008, -4/+7Keep dreaming. The oil is running out. We've already reached peak oil. Its only going to get worse.
- salinemist, on 07/08/2008, -2/+2Speculation over a possible supply shortage in the future does not mean that oil is "running out".
SeanRockCity, on 07/08/2008, -0/+1"Further, the models showed that the bubble is close to a local peak, and we may have even reached the peak already. On the other hand, the researchers noted, this critical peak may also be embedded in a larger-scale bubble, one that could develop in the coming months and years."

In other words, they don't really know anything.
Mightbiteyou, on 07/08/2008, -0/+0close enough to end of an administration that is in the oil industries pocket that makes it not worth going through impeachment proceedings. Yeah I would expect that to be when oil prices are the highest.
amightywind, on 07/08/2008, -0/+3"Are We in the Peak of an Oil Bubble?"
Yes, we are. Unfortunately the high prices will have induced a recession in the US. The best thing the Fed can to is raise rates 1/4 of a point. This will cause the dollar to rise and push oil speculators off the cliff. Long oil positions will unwind fast as short sellers start to smell blood. The effect of a rate hike on already anemic economic growth should be negligible.
drmorley, on 07/08/2008, -1/+2Bush should release 1/3 of the strategic petroleum supply, flood the market with oil and ***** the speculators.
- alexkreuz, on 07/08/2008, -0/+0The reserve is for the military not for consumers. Wouldn't it suck if Iran blocked the straight and our jets didn't have fuel because the petroleum reserve was emptied for hummers ..
- smoger, on 07/08/2008, -0/+1thats not bad. maybe enough of them will kill themselves to avoid this problem in the future
- nyenyec, on 07/08/2008, -0/+2That would be like 3-4 days worth of world oil consumption. It wouldn't make a difference.
Aliwalla, on 07/08/2008, -0/+1The oil price is almost entirely due to speculators, Gazprom, Morgan Stanley etc deny it until their blue because they are making billions off it. However, in the long run a high price is good because we need to get over this oil thing, and quickly. I'm pissed at these fancy schmancy investment banks and they need to be smacked, hard. But they've accidentally done something very good.
woodrow8292, on 07/08/2008, -0/+1I was talking to all the people who just comment about sticking the heads of oil ceo's on sticks because it's all their fault, even without reading the article. They see oil in the title and just post away with all their uninformed craziness.
bootau, on 07/08/2008, -0/+0look to the folks in dc who neaver had a real job. if we keep doing the same thing oil will still rise.should we have some new faces in dc & after 3 years get rid of them & send some more new faces in dc.
jvin248, on 07/08/2008, -1/+2At one time the stock market peaked at 1000. Then it peaked at 10,000. Both times it had a rising graph and "it can't go any higher". So oil is just on the trend. It will go higher.

Supply & Demand forces are at work. Speculation can only be on fringe amounts (difficult to trade in the amounts that are consumed each day in the US - the numbers are just too outlandish).

How many SUVs were manufactured in the last 15 years, how many houses (to heat & cool) were super-sized into McMansions in the last 15 years. How many new people were added around the world. How much more manufacturing and transport trade around the globe than before. It's consumption - consumption that is drawing over the supply increases.

When consumption is near the supply capacity then any hiccup will cause wild spikes. What happens on the freeway when someone spills their coffee or answers their cell phone - they slow down - when the highway is full or at capacity during rush hours it causes a traffic jam but if it happens at 2am then no traffic jam. Demand is just very close to Supply.
- kaplanfx, on 07/08/2008, -0/+2the problem with your point is that there are huge spikes right now without any supply hiccup (no lines at the pump etc.). This means folks are SPECULATING on a future hiccup. If supply increases, demand decreases, or no hiccup ever occurs, the speculators were wrong and the oil is significantly overpriced.
smoger, on 07/08/2008, -0/+1does anyone besides me remember that convenient Texas pipeline explosion back when gas was ~2.60 ? thats when this all started.. it never dropped a cent after that day

i can't wait until these speculators start jumping off buildings after they're ruined.
jvin248, on 07/08/2008, -2/+0At one time the stock market peaked at 1000. Then it peaked at 10,000. Both times it had a rising graph and "it can't go any higher". So oil is just on the trend. It will go higher.

Supply & Demand forces are at work. Speculation can only be on fringe amounts (difficult to trade in the amounts that are consumed each day in the US - the numbers are just too outlandish).

How many SUVs were manufactured in the last 15 years, how many houses (to heat & cool) were super-sized into McMansions in the last 15 years. How many new people were added around the world. How much more manufacturing and transport trade around the globe than before. It's consumption - consumption that is drawing over the supply increases.

When consumption is near the supply capacity then any hiccup will cause wild spikes. What happens on the freeway when someone spills their coffee or answers their cell phone - they slow down - when the highway is full or at capacity during rush hours it causes a traffic jam but if it happens at 2am then no traffic jam. Demand is just very close to Supply.
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Are We in the Peak of an Oil Bubble?

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