JetPiedmont

1) Bull market prices go up with decreasing supply. (commodities)

2) Bubble prices go up with increasing supply.(Real Estate, Internet Stocks)

3) Dollar devaluation based on gov't printing money to cover war, gov't bail outs, spiralling deficits created by Congress as part of fiat monetary policy (due to taking currency off gold standard), low interest rates from Fed over last two decades.

4) Governments worldwide are printing money increasing money supplies by record amounts of 15-20% this year alone, all based on fiat currencies (no gold standard).

5) Fiat currency policies devalue currencies and eventually lead to hyper-inflation which destablize governments and societies.

PicklePausePull

So what then are the NEW variables that have driven the price of oil up to this astronomical price? Seems to me that nothing much has changed over the past 5-10 years. china has been producing products for the world for well over the past ten years; As has India; the Middle East has been in far worse turmoil than it is today; Central and South American governmetns are far more stable today than two decades ago (Venuzuela being an important exception but hardly the single card to drive up oil prices); demand has been steadily increasing over the past two decades and this has been taken into account by efficient markets.

Seems to me your analogy to the dot coms, and the housing market is spot on! This price increase in oil is mostly a speculative bubble, created by emotion in the market place which is not justified by supply and demand curves, nor taken into account under efficient market theory. And, just like the dot com bust and the housing bust, this oil market will also bust. Unfortunately, it will first drive many companies out of business, just like the last two bubbles did. The one added feature that is making theis speculative bubble worse is our Fed. driving the value of hte dollar lower in order to stimulate international buying power for our goods. Since oil is priced in dollars, a decrease in the value of the underlying currency directly effects the price of the commodity. But $130+ per barrel is mostly speculation, unjustified by world supply and demand changes.

Rex Kramer

When people try to rationalize markets behaving in an irrational manner it should send up red flags. How many people argued that these were "new" times during the dot-com and housing bubbles, and that historical fundamentals no longer applied. Look at how much money is being poured into oil and other commodities, reminds me of all the hacks who became day traders and idiots flipping condos. The mentality is like an investor swarm of locusts trying to get rich quick while driving up each "hot" investment vehicle until the bubble pops and what's left is a disaster. Then the swarm will move on and wreck the next great investment. Perhaps, this will serve as a wake up call to get serious about our future energy needs.

WhizWheel

The new variables are the weak dollar which was a heck of a lot stronger 10 years ago, Nigeria now being a major oil supplier to the world but always on the verge of a major disruption in supply with the next attack on pipelines by the Movement for the Emancipation of the Niger Delta, China's economy 10 years ago wasn't nearly what it is today, nor was their oil demand.....say the same for India, speculation has always been there but its at a frenzy right now (right now just happens to be the time speculators went nuts), 10 years ago we weren't waging a war in the Middle East (Gulf war lasted 2 weeks in 1991), the unstable South American govts, now, just happen to be major oil producers (Venezuela and Chavez), the slow creep to the apex of no new refineries in the past 30 years (South Dakota is FINALLY building a new one) and reaching critical mass on demand. I'd say pretty much all these variables are a bit different than in 1998.

PicklePausePull

I disagree. All of these factors, save for the Venuzuela situation, are already priced into the market, because they have occurred steadily over the ten+ year period. None of these are "shocks" to the system to drive oil from $16/bbl to over $130/bbl. in such a short time span.

WhizWheel

I guess we'll have to agree to disagree on that one

Boogie Nights

http://money.cnn.com/2008/06/06/news...ion=2008060610

WhizWheel

Just be careful not to believe everything you read. Just because its CNN Money doesn't mean its gospel. You can't compare oil to the housing bubble or the dot com bubble. Oil is a COMMODITY traded on an exchange, by professionals that make HUGE amounts of money to work these markets inside and out based on complicated technical analysis.......real estate and dot coms are not. They are wrought with amatuers and dumb money based on emotion. Commodities work in very different ways compared to any other security. Lets just keep in mind that only 5% of oil futures contracts actually physically take posession of the oil. That means 95% of futures contracts are bought and sold (or borrowed and sold in the case of short sales) and very shortly are unloaded before delivery. This system is RIPE for manipulation and now that many variables favor market manipulation, speculators are taking advantage of it. If you feel the need to ignore this, stick your head in the sand, cover your ears because it doesn't feel good then fine. It doesn't negate the fact that speculation is a MAJOR driving force in this over inflated oil market.

mattisawesome

You are right on the money my friend. This price volatility since the beginning of 2008 is rampant speculation. The US has plenty of supply of gasoline, diesel and oil. The government report that came out last week said as much. I'm not worried about this because it is blatantly obvious that this is pure speculation.

ExperimentalAB

Their gasoline is over 50% taxes! It has nothing to do with us "catching up..."