Originally Posted by
PicklePausePull
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.
The new variables are the weak dollar which was a heck of a lot stronger 10 years ago, Nigeria now being a major oil supplier to the world but always on the verge of a major disruption in supply with the next attack on pipelines by the Movement for the Emancipation of the Niger Delta, China's economy 10 years ago wasn't nearly what it is today, nor was their oil demand.....say the same for India, speculation has always been there but its at a frenzy right now (right now just happens to be the time speculators went nuts), 10 years ago we weren't waging a war in the Middle East (Gulf war lasted 2 weeks in 1991), the unstable South American govts, now, just happen to be major oil producers (Venezuela and Chavez), the slow creep to the apex of no new refineries in the past 30 years (South Dakota is FINALLY building a new one) and reaching critical mass on demand. I'd say pretty much all these variables are a bit different than in 1998.