Just because housing was a bubble doesn't mean oil is a bubble.
It was all bullcrap, and now you are ready to believe the same thing about oil.
Like you, I called the housing bubble. I moved to Seattle in 2006. Even though I could afford to buy, I chose to rent, and continue to rent, because I realized there was a bubble.
That's because there was data supporting the bubble hypothesis for housing: rents out of line with prices (much cheaper to rent, even without the tax deduction), flippers buying up virtually all new units coming online, etc.
There's zero data to back up the idea that there's an oil bubble.
Please explain to me WHY oil is up 48% year-to-date alone? Increasing demand?
That, and declining production in existing fields, and fewer than expected new finds in exploration.
Bullcrap. Oil futures are forward looking and we haven’t even begun to see the world demand destruction caused by these leap-frogging oil prices.
Both futures and spot prices are high. Futures prices are actually low compared to spot prices right now; there's a sizeable net convenience yield. Inventories are lower than usual for the summer. All the indicators point to a shift in fundamentals as the underlying cause.
If futures speculation were driving the current price, there would be a rise in inventories and futures prices and the net convenience yield would be negative. That's just not what the data show.
Never mind. The people who told me the NASDAQ was correctly priced because it was a “new economy” and “profits don’t matter” never bothered to come back and eat crow.
Unlike with the tech bubble, all the traditional fundamental indicators point to the conclusion current prices are rational: low inventories, high net convenience yield, few new fields coming on line, declining production in existing fields. There's nothing new here. Just good old fashioned analysis.
It's the bubble crowd who's waving their hands and claming everything has changed because of the supposedly evil speculators.
Now why would the same type of gullible fools who believe there is no oil bubble be any more likely to eat crow when they are proven as wrong as the previous fools.
We'll see who eats crow (hint: it's going to be you).
It'd be a good double-check whichever way, to look at the average daily or weekly price changes (as a percentage of daily price) over the past 20 - 30 years, and to compare that to the average price itself.
If the *normalized* volatility remains in a constant range even while the price has gone up 48% in a year, that's well and good.
But if the (read the word again!) *normalized* volatility has increased just at the same time that the price has skyrocketed, that indicates something other than supply vs. end-user demand at work.
Cheers!
I don’t mind eating crow when I’m wrong. I state my beliefs and I try to state my reasoning as well. When I am wrong, I’m wrong, and I admit it.
The core for me is, why has the price of oil risen so far so fast? My problem is, the sudden meteoric rise in prices, up 46% year to date, as it relates to your belief that the fundamentals of increased demand and reduced supply and expected supply are the basis for today’s oil prices.
No doubt a good chunk of that increased cost is due to the dollar’s tumble. And if the dollar strengthened to par with the Euro, we would see a direct proportionate decrease in oil prices.
That leave the balance of that 46% year to date increase, attributable either to fundamentals of supply and demand, or speculation, or both.
Here is the source of my doubts that supply and demand is responsible: the price of oil has been soaring since 2003. I can’t find a reasonable, logical explanation for the sudden shift in oil prices, straight up. Everyone has been aware of the stellar growth in developing nations. This is not something that just appeared beginning in 2003 and caught everyone off guard. Everyone has been aware of the possible plateau in world oil supply for quite a long time.
I simply can’t reconcile why oil was selling for $30 a barrel all through 2002, and suddenly spiked. I can’t accept that investors and retailers and supplies just woke up one morning in January 2003 and smacked their heads in shock with the sudden realization that oil demand was steadily increasing while oil supply was not.
What was this not priced into oil price in 2002? And in 2001? And in 2000, etc?
Now you know why I am having such incredible difficulty believing that market fundamentals alone account for $140/Bbl oil (in conjunction with a weakening dollar).
So, how is it that the market so suddenly and so rapidly discovered the looming supply/demand problem in 2003 and beyond, when they seemed to be completely asleep at the wheel prior to that time?
If you have a logical answer to that question — why the world market completely discounted the obvious and looming problem with future oil supply and demand prior to 2003, and just suddenly and forcefully discovered it — then I can start to open my mind to the possible idea that there is not a bubble in oil prices and that $140/Bbl oil is here to stay.
Any help you can give me in that regard is appreciated. Without a logical answer to that enigma, I just can’t accept the fact that prices went from $30 in 2003 to $140 in 2008 on the sudden revelation that world demand was increasing faster than world supply.
FWIW, I am assuming that if the dollar were to strengthen to par with the Euro, a Bbl of oil would cost $80 US today. So the rise in oil prices not considering currency is an increase of 170% in 5 years. I am finding it very difficult to believe that a 35% annual increase in the cost of oil since 2003 is due to market fundamentals of supply and demand alone, discounting the weakening dollar. Hopefully, you can explain to me why how this could be, because I really can’t see it.