Friday, May 30, 2008

Is it an Oil Bubble? Steve Chapman and Chicago Tribune

Tribune columnist Steve Chapman disagrees with those who say oil prices will continue to increase:
At the risk of ending up on Pollyanna's Christmas card list, allow me to differ. Oil prices are unpredictable, particularly in the immediate future, and it's easy to think of events that could force them higher—like, say, a war between the United States and Iran. But in the long run, there is every reason to think that the steep, rocky ascent we have been on will give way to a welcome downhill path.

I'm not alone in my optimism. Michael Lynch, head of an energy consulting firm in Massachusetts, told The Associated Press the current price of gasoline "is the peak or very close to it." Analysts at the investment bank Lehman Brothers say we are just as likely to see oil at $80 a barrel as at $200.
His bosses agree with him that prices for oil will drop when the bubble bursts:
Economic bubbles don't widely reveal themselves until they burst. The bubble in technology stocks was apparent to former Federal Reserve Board Chairman Alan Greenspan in December 1996, yet that didn't stop investors from bidding up tech stocks to stratospheric levels for three more years. They were in bubble denial, having convinced themselves that the tech revolution meant the normal rules of supply and demand just didn't apply anymore.

You know what happened.

This leads us to wonder whether there is an oil bubble.

Columnist Steve Chapman argues on today's Commentary page that oil prices are likely to see a significant decline. We're going to agree with him. This has the look of a bubble.
Frugal Ben says:

These prognosticators influence opinion (See the reader comments!) and governmental action, but no one ever keeps track of their predictions. Well, ThriftSlut will! We will see how these predictions look 12 nd 24 months from now!

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