So I think we are in huge oil bubble. Oil is a good example of a boom-bust commodity. When it does well, it does really well. When it does bad, it does really bad. Example, the 70's boom was an 80's bust. Record highs in the late 70's resulted in record lows in 80's and 90's. So oil is booming now, but for how long? I'm not crazy, I think we're running out, but we're not running out tommorow. There have not been any steep decline in production, nor has there been any steep increases in consumption. The worst case scenario, I'm using the one provided by Matt Savinar, is that world production decreases by 2% and demand increases by 2%, so a 4% change year after year (this does have little to do with reality, as high prices have dropped demand). Bring on the chart.
So starting in 2000 at $35 a barrel, 4% would put us at around $50 a barrel today, not inflation adjusted. If you adjust for inflation, it's about $70 a barrel I think, well at least that's what the Saudi's would lead us to believe. Needless to say this looks like, oh, I don't know, the dot-com boom, the housing boom?
The current price of oil is totally dictated by speculation. It has nothing to do with supply or demand. It's just people driving up the price to drive up the price. Some day oil will be at that price, that day is not today. I can't say when the speculation will end. It will probably get worse before it gets better. Looking at the chart and using my brain makes me think probably in the next year there will be a fantastic correction in price that occurs when price is determined by speculation and not cold hard numbers.
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