The Coming Collapse of Oil Prices

The spiraling price of oil is looking more and more like a classic bubble — a run-up driven more by speculation than the usual pressures of supply-and-demand.

Ronald Bailey addressed this subject in an article two months ago. He quotes Tim Evans, an energy futures analyst at Citigroup’s Futures Perspective, who says, “I think that this is the riskiest time to be long in crude oil since 1980.”

Larry Elliott sees a parallel with the dot.com boom of the late nineties. “The oil market, to put it simply, is a massive bubble waiting to be popped.” When? Elliott won’t venture a guess.

“Bubble markets are not remotely rational, which is why it is impossible to say how high the price will go or how long the boom will continue before the bust arrives. But make no mistake, that moment will come.”

Justin Lahart is not convinced that we’re seeing a bubble, but agrees that the eventual outcome is a fall in prices.

The combination of a change in consumer behavior and an economic slowdown that is showing signs of spreading beyond the U.S. may already augur just the kind of sharp drop in prices that occurred back then [1980s]. But if that happens, it won’t be because oil prices were in a bubble; it will just be because that is the way commodity markets work.

What does all this mean? Well, for me, it means I’m in no rush to dump my gas-guzzling car at a fire-sale price, and pay a premium for a more fuel-efficient model. Barring an unforeseeable catastrophe in the market, the price that I’m paying for gasoline at the pump will eventually fall to a more reasonable level.

And life will go on.

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2 responses to “The Coming Collapse of Oil Prices

  1. Pingback: The Oil Correction « Poppypundit

  2. Pingback: The Bubble Has Burst « Poppypundit

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