Originally Posted by
WhizWheel
The oil bubble......lets compare. The dot com bubble was based on companies who's cash value was minimal but emotion in the market drove their P/E ratios through the roof thus driving stock prices into the heavens. A thin support level at such high prices was just taunting the market to pop the bubble thus sending stocks and overvalued companies into a tailspin. Not much variance in what drove prices so high.
Lets look at the housing bubble. Once again you have a thinly veiled support level whereas properties are listed at price levels FAR above what the natural market would be dictating. One variable, emotion, is driving this. Ripe for collapse as you have seen.
Oil on the other hand is subject to many different variables thus strengthening the support of high prices. Supply, demand, rouge oil nations, speculation, emotion, mother nature......they all have a roll in setting the price of oil, some more than others. Many of these variables are solid and resistant to change thus keeping the support of high oil prices solid. Will we see a retracement? Yes, but $90+ price per barrel is here to stay
So what then are the NEW variables that have driven the price of oil up to this astronomical price? Seems to me that nothing much has changed over the past 5-10 years. china has been producing products for the world for well over the past ten years; As has India; the Middle East has been in far worse turmoil than it is today; Central and South American governmetns are far more stable today than two decades ago (Venuzuela being an important exception but hardly the single card to drive up oil prices); demand has been steadily increasing over the past two decades and this has been taken into account by efficient markets.
Seems to me your analogy to the dot coms, and the housing market is spot on! This price increase in oil is mostly a speculative bubble, created by emotion in the market place which is not justified by supply and demand curves, nor taken into account under efficient market theory. And, just like the dot com bust and the housing bust, this oil market will also bust. Unfortunately, it will first drive many companies out of business, just like the last two bubbles did. The one added feature that is making theis speculative bubble worse is our Fed. driving the value of hte dollar lower in order to stimulate international buying power for our goods. Since oil is priced in dollars, a decrease in the value of the underlying currency directly effects the price of the commodity. But $130+ per barrel is mostly speculation, unjustified by world supply and demand changes.