Is $130 oil a bubble?
Some say no. They say unlike the tech and real estate bubbles, there's no overabundance of supply. Others say these high prices are not sustainable.
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Steve Hargreaves, CNNMoney.com staff writer
Last Updated: May 23, 2008: 12:35 PM EDT
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NEW YORK (CNNMoney.com) -- Oil prices have doubled in the past 12 months, surging nearly $8 a barrel in the past four days alone.
Big investment funds are putting money into oil futures as if Saudi Arabia's spigots will run dry tomorrow. At the same time, the supply of oil and the demand for it hasn't changed much in the last year.
So it raises the question: Is $130 oil nothing more than one big bubble?
The answer depends on who you ask.
"A bubble is where supply overwhelms demand," said Stephen Leeb, an investment manager who has authored two books on oil scarcity.
Leeb pointed to previous bubbles - like the tech bubble in the late 1990s where companies with zero earnings issued massive amounts of stock, and the real estate market a decade later where home builders went on a frenzy, overshooting the number of homes the market could absorb.
"But unless I'm missing something here, I don't see any massive increase in the supply of oil," he said.
Like many in the not-a-bubble camp, Leeb pointed to surging demand from places like China - some estimates see auto ownership there surging 30-fold in the next few decades - coupled with dwindling supplies as the main reasons behind pricey oil.
Thursday, the International Energy Agency gave advance warning that its previous forecast for supply and demand remaining in pleasant equilibrium over the next two decades was flawed. Its new projections, due in November, will say supplies may fall 10 percent short of demand, according to a report in the
Wall Street Journal.
Leeb said Russia was already seeing a drop in production, and there's little evidence Saudi Arabia could increase production even if it wanted to.
"If the two biggest oil producers in the world can no longer increase production, that's a catastrophe, not a bubble," he said.
I sure hope that I'm wrong on this whole issue as does everyone else in the "Peak Oil" awarness camp. But I don't think that is the case. If you are interested in further research I recommend getting ahold of "
A Crude Awakening". It's a well made documentary on the subject and everyone interviewed minus one lawyer has some serious credentials in related fields. It's a good starter kit.