Bubbles are funny.
Until they aren't.
Let's look again at oil, where total world demand rose by... wait for it... a whopping 0.9% (YES, THAT'S ZERO POINT NINE PERCENT) over the past year, while world liquids and crude production increased slightly more than 1%. And yet prices per bbl. rose over 80% in the past year, and 697% since 2001. Pets.oil anyone?
So what's driving the current Great Oil Bubble (GOB) madness? Oh, maybe the $3.5 trillion in oil derivatives, or the $90 billion in speculative hot money that's poured into the new commodity indexes.
There is no consumer-market-based justification for the rise in oil prices. The madness is purely and simply a speculative one, just like housing, just like dot-com stocks, just like tulip bulbs and tea.
Yes, the same hedge funds, pension funds, investment banks and hot-money investors who gave you the housing bubble and mortgage madness are now giving you the GOB.
Bubble after bubble after bubble... Just as we expected. But with housing it was "HEY, COOL, WE'RE ALL GETTIN' RICH RICH RICH!!!!", while with the Great Oil Bubble it's "HEY, CRAP, WE'RE ALL GETTIN' POOR, POOR, POOR!!!".
Keep in mind that bubbles last longer than you think they ever will. But in the end, they end. All of 'em. And this one will too. Where and when will it end? Who knows. But when it does, it will end spectacularly and gloriously. And when it does, there will be RAGE in the streets as gas prices don't come down along with the price of oil. But that's another story...
There is one nice lasting effect with this Great Oil Bubble though - it has changed the world's collective consciousness in regards to fossil fuels and consumption. The "GOB" will launch a clean energy revolution - wind, solar, biomass, nuclear and even some energies as-yet-undiscovered. And SUVs and trucks are the new mink coats - their owners are now social pariahs, scorned and mocked while they piss what's left of their money away at the pumps.
And a word for the Peak Oilers out there - yes, at current consumption and production rates, we've got a problem. But what you don't take into account is that the world (i.e. 'the market') because of prices, political instability, global warming and the dramatic change in collective consciousness, will now be making The Great Change, away from fossil fuels as fast as it can. Past demand does not equate to future demand as your projections dictate. And a Big Change is coming.
Here's some recent quotes on the GOB. Get some popcorn. And have at it.
" There's nothing different between this mania, the dot-com mania, the real estate mania, the Dow Jones mania of the 1920s, the South Sea bubble and the Dutch tulip-bulb mania. History repeats itself over and over and over again."
- Stephen Schork, oil analyst, June 2008
"Current price levels do not reflect supply and demand realities. A review of prospects for the remainder of the year also shows little support for prices to remain at current levels."
- OPEC statement, June 2008
"The supply-demand fundamentals do not explain the sharpness of the ascent this year. Nor does it make any allowance for the reaction of the end consumer."
- Bill Jamieson, Economics Editor, Sunday Telegraph, June 2008