Oil price 'a bubble waiting to burst'

[Fledermaus]

DESPITE all the gloom, oil prices are predicted to fall 30 per cent within 12 months, giving motorists much-needed relief.

Many economists argue that the present oil market is a bubble waiting to burst, much like the tech-stock boom in 2000.

They say the price is being boosted by speculators, and point to a Persian Gulf chock-full of supertankers, chartered by oil-rich governments to hold fuel they cannot sell.

Oil retreated slightly from its record high of $US135 a barrel last week and economists tip it will fall to around $US100 in six to 12 months.

However, it may top $US150 before that happens.

http://www.news.com.au/business/story/0,23636,23754398-462,00.html

[MadMaddie]

1. In Six to Twelve months we will have a new President and an

enhanced Congress...of course the oil prices will drop....

[Xipe Totec]

2. And the price of oil when chimpie took office?

$30 a barrel.

So it will drop from four times to only three times as expensive as the last time we had a Democratic President in the White House.

[Fridays Child]

3. Raise the price to $150/barrel, then drop it back to $100...

...and we're all supposed to breathe a sigh of relief? Well, they'll have to excuse me if I'm not relieved because the problem is that I haven't had a raise since it was $30/barrel. :mad:

[MannyGoldstein]

4. I Was Just Thinking About This Today

As far as I can tell, there's no shortage of oil.

I smell a big bubble.

[Arctic Dave]

6. There may be a slight bubble but I'm looking out my window

right now at the Prudhoe Bay oilfields and we are working every rig we have. More are on the way and they are also bringing old outdated rigs back on line. This last drilling season was busy, next season is planned to be even busier.

[Warpy]

8. High prices on the spot market make them want to sink

plastic drinking straws into any sort of sandy soil in the hope of sucking up some oil through it. Wells that were played out ages ago suddenly go back into production, trying to get the dregs out while the price is up.

I'm not a bit surprised at what you're seeing. We saw the same thing back in the 70s. OPEC jacked the prices up and suddenly oil was being pumped all over the US again.

This is not a supply problem and never has been. It's also not what's driving our gas prices.

Most of the foreign oil imported to the US is on long term contract at a set price. Contracts are renegotiated every few years. What we're seeing now is the effect that losing half the dollar's value has had. Our $1.79 oil from 2003 or so is now between $3.75 and $4.25, only slightly above where it should be. Refiners have cut back to 85% of capacity (or that's what they admit to), so the extra increase in price is due to a refinery bottleneck and the automatic gouge they do on Memorial Day weekend.

What that $135/bbl oil represents is spot market futures, always more expensive than contract oil and used when there is a shortfall due to a screwup of some sort. That $135 is a bubble that will pop, quite possibly spectacularly, if there is no additional war started in the middle east.

[Arctic Dave]

11. Prudhoe Bay does not sell the oil on the spot market

it is all long term contracts within the same corporation. But your point is valid. Also oil companies would nold be spending half a billion dollars to drill if they knew the bottom was going to fall out.

Heres a bone for the CT in all of us (this is just as probable as anything else). This may all be a primer for a supply shortage on the world market. Codespeak for bombing Iran. Weaken their economy by inplementing sanctions, stop buying their oil, then bomb them. Doesn't sound like science fiction to me.

[Warpy]

12. Nor me. I find the fact that Stupid keeps bloating

the Strategic Reserve instead of releasing oil to knock that spot market price down very telling. He's sending a message to the hedge funds that their game will be protected. He's also ensuring the military of an unbroken supply should he decide to start another war we can't possibly win.

[Arctic Dave]

13. You got it. n/t

[happyslug]

5. This was first discussed on May 20th, 2008, and it does NOT appear to be a bubble

For more see the May 20th thread:
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3316805
I quote his article:

The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding — an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling.

But it hasn’t happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels. This tells us that the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.

Other experts in the field have actually pointed out that in the last two years WORLD WIDE storage of oil has actually DECLINED. In simple terms there appears to be a REAL SHORTAGE, that the right does NOT want to accept, for to accept it means to address it, and that means coming out with a way to reduce DEMAND. We can reduce demand by leaving the price go higher and higher, we can reduce demand further by increase taxation, we can reduce demand by buying less. This reduction is often do to increase price but the US military uses about 5% of world wide oil usage, thus a withdraw from Iraq AND mothballing the Navy and Air Force (And telling the Army to learn to March) may be the best way to reduce the present price of oil.

Krugman's Article on this subject:
http://www.nytimes.com/2008/05/12/opinion/12krugman.html?_r=1&oref=slogin

[Speck Tater]

7. "many economists?"

What do economists know about oil geology. They are used to dealing in a world where demand creates supply. They expect the same will happen here. But supplies are running int an absolute physical limit, something economic models are not able to deal with.

Models that assume infinite growth is possible are all breaking down. Economists are scrambling to "explain" the problem in economic terms. The problem is cheap oil is gone forever. No amount of additional demand can ever create more supply. The best we can do is extend the 85 million barrel per day plateau that we've been on for 3 years now.

[Terry in Austin]

9. Wishful handwaving

Their quantitative argument is to "point to" a bunch of "chock-full" tankers? Tell me, is that a metric "chock" or an imperial "chock?" More to the point, what's the ratio of chocks produced to chocks consumed?

And these guys are who, exactly?

Deniers worth their salt can at least come up with actual arguments. Sheesh!

[NickB79]

10. The same thing was said when oil passed $40/barrel 3 years ago

And again at $60/barrel, and $80/barrel, and so on and so on.

Until oil drops below $100/barrel, call me unconvinced, because the "experts" have been wrong again and again on this issue.

[Kablooie]

14. I believe it's a bubble, but one of a long series of bubbles, each one higher than the last.

and the overall price will continue to rise.

[IrateCitizen]

15. Drivel.

"Many economists"? Such as whom?

"... a Persian Gulf chock-full of supertankers"? Where are these ships docked, and how does the author know what they contain?

"... economists tip it will fall to around $US100 in six to 12 months." Based on what, exactly? Again, what economists?