The Oil Bubble Will Meet the Same Fate as Tech, Housing

Over the last ten years the S&P 500 has returned a meager 2.88%. Why? Because in the long run the market doesn’t like bubbles. We’re now in the third wave of bubble euphoria and we’re hearing the same underlying message that we heard during the first two, just in different terms. During the dot-com era we watched tech fly to P/E multiples of 200 and above. When fund mangers were questioned about investing in such companies back in 1999, they collectively responded by saying times had changed. Lofty valuations became the new norm-until they crashed that is. The Nasdaq (QQQQ) still isn’t even half of what it was in 2000. The market’s punishment of the dot-com bubble has lasted for seven years.

Real estate investment shifted into bubble status due to low interest rates and easy lending practices advocated by the Greenspan Federal Reserve. Back in 2005 it was difficult to find anyone who didn’t want to jump into real estate. Flipping homes was the new trend for amateurs. Unfortunately it’s always the last guys in who get burned by a bubble. Those developers are being suffocated from the holding costs on their sinking investments. After watching home prices double and triple, nationwide home valuations have plunged since 2006 with more yet to come. Homebuilders (XHB) and financials (XLF) have been crushed by the bursting real estate bubble and it will likely take years before these stocks regain prior highs.

Now it’s oil (USO) that's bubbling. Two weeks ago oil prices reached a 600% increase since the bull market began. The oil bulls are using the same arguments that we heard from tech analysts in 1999 and real estate agents in 2005. They will use any rationale they can find to shift our focus away from the fact that gasoline shortages don’t exist and new oil is plentiful. There are now 53 commodity ETFs and ETNs that have caused average daily volumes to soar from 5 million in 2006 to well over 30 million today. History will repeat itself and the last guys in will get burned. Industry insiders believe that the proper valuation of crude is somewhere between $40-$50 a barrel. When will this bubble burst? Nobody can predict the exact time but the essential elements are in place: the Fed is done cutting interest rates, Bush is waiting on Congress to lift the offshore drilling ban, Congress in considering limits on speculation and high gas prices are decreasing demand.

The conclusion is that we are hearing the same story coming from the oil sector that we have heard in previous bubbles. They will tell you that this time is different, or that the fundamentals have changed - when they really haven’t. The only thing that has changed is sentiment. This bubble will burst just like the last two and it will be ugly for those who have gotten caught up in the hype. Over the next six months investors should average in to a short position in the U.S. Oil Fund (USO). Be suspicious of alternative energy as well. Solar, wind, natural gas, etc... will all fall with oil.

Disclosure: Long DUG

Comments

[goatfarmer]

A very well written and cogent argument. Against the argument that the bubble will burst soon are the facts that US demand no longer dominates the market and demand around the world is buffered by subsidies in many countries. But I agree with the sentiment.

By the way, I made a 60 year crude oil chart today on a log scale and found a nice little channel (big channel actually) with resistance bang on 140 or thereabouts. It will be interesting to see if it is borne out by a top in the coming months.

[Outtanames999]

We all hope you are right. Where is Greenspan to declare "irrational exuberance" for oil? Well, at least we have you.

But even if this market eventually corrects itself, one has to wonder, why is the cost of oil is so disconnected from the cost of production, refining and distribution, and why is it disconnected from actual supply and demand?

We can see clearly now the supply chain is corrupted when futures market pricing drives retail prices in real time (but of course in the up direction only - prices at the pump somehow never fall as fast as they rose).

Speculators should be free to make whatever speculative bets they like in free markets. However, there is no reason those bets should affect the underlying subject of the bet.

When you bet on the outcome of a sports game in Las Vegas, your bet has no affect on the score of the game (unless there is corruption which of course would be, uh, how should we say, Illegal).

Can you imagine what would happen on the field if the players had a stake in the betting action on the game and the odds were posted on the stadium scoreboard in real time during the game? This is what we have in the oil markets today.

In the same way, speculators should be able to bet in a disconnected way on the future price of just about anything. But their bets should not drive the market or corrupt the supply chain. And this is what we must achieve in the oil markets or we will certainly have more bubbles in the future.

The price of a commodity is a kind of score. And the scorekeeping must not be in the hands of the gamblers in the oil markets any more than it is in the sports betting markets.

Not to mention, this is the age of the Internet, the great disintermediator. Name one industry that has not been disintermediated by the net. Oh, yeah, Oil.

Why can't I buy my own barrels of oil direct from OPEC? Why must I buy through a corrupt, unregulated and disorderly commodity exchange market?

Where is the Amazon and Orbitz of the oil market that puts the customer in control? It sure isn't the commodities market.

As to drilling in Anwar, et al in the U.S., before we go down that path and begin consuming our reserves, we must ask ourselves some very fundamental questions.

So let me ask you this, if you could choose between these outcomes, which would you pick? We run out of oil before the Saudis. The Saudis run out of oil before we do. We both run out at the same time.

Now what do you suppose the odds are that we and the Saudis will both run out of oil at exactly the same time. You got it - that will never happen. So we are left with the other two.

I don't know about you, but if I had the choice, I would rather see the U.S. be the last oil field standing (our children's children and all that), so I'm not that eager to see us start the drilling quite yet. Oh and since we know that the price of oil has nothing to do with supply and demand, all the drilling in the U.S. will do nothing to bring down prices. Sad, but true.

So we are left to other means of ensuring that prices are not corrupted by the markets. Anyone have a plan for that?

[echotoall]

I don't know if Oil was as severe of a bubble as you claim because we can not dismiss the fact that supply constraints existed, and demand was really high. There are also obvious macro economic effects that support an elevated Crude price. But, with that said, I was Short Oil via USO puts from 138-145 as the fundamentals drifted from the price of Oil.

Over the past few month we have been seeing a huge demand destruction, lack of physical buyers and emerging markets slowdown, yet Crude kept rising.

We will be able to call oil's awesome move a bubble if...

1. demand destruction continues
2. new supplies come on line to meet future growth demand
3. how quickly the US can adjust to alternative energy vehicles
4. geo-political threats ease

All of which will continue to create downward pressure to oil, and fortunately are in the cards, but we can't call oil tulips just yet.

[jayjayjay1212]

Very good article.

I don't agree with the 40$ oil statement about industry insiders (Boone Pickens, an insider, sees it at 100$), but still the article is very insightful.

Speculators have an essential role in the oil market, but the so-called index investors (mostly large passive pension funds who look for the diversification benefits of investing in commodities) do not. Index investors do not serve a specific purpose on the market; they only put upward pressure on the price of the barrel that is unfortunately not always corrected by speculators. This has the effect of transfering wealth from net oil importing countries to net exporting countries.

Explanation:

The portfolio of the pension fund that invests in oil will get greater benefits from diversification, but it comes at the expense of its clients (us, individuals) paying significantly more at the pump. Therefore it's actually a very unprofitable and short-sighted strategy by pension funds to invest in oil futures, since their clients lose a lot more than they gain from it!

It would be nice, but unlikely, to see the US government regulate the index investors, and letting speculators do their job.

[User 228158]

This is one of the best articles I have read on the oil prices. Finally someone pointing out that there is no oil shortage and the bubble will burst. The bubble will burst probably sooner than later once everyone sees what the auto manufactures have in store for next years non-gasoline cars.

[800LB GORILLA]

Boy,they let anybody post one of these I guess.Oh yeah,oil is over a $100 for no reason other than speculation.How about doing some research and posting something worthwhile.

[CLH]

Very good article. No its NOT different this time. DUG is a winner.

[chistletoe]

obviously you have a lot of people who agree with you.

The price of oil "falls" to $130 a barrel, and doomsayers come out of the woodwork.

The key here is your statement "gasoline shortages don't exist and new oil is plentiful" ...you have no facts to back this up, only your own beliefs ... inventories are at a five year low ... the amount of finished gasoline in the system is so low that spot shortages are very, very likely to begin occurring later on this year ... exploration and new drilling and other capital investments are at an all-time high, yet the new oil coming on line is not anywhere close to replacing the decline of the huge old discoveries such as Cantarell and Ghawar ... the fact is that worldwide, total oil production has gone into a sharp decline since 2005 ... yes, the "high" prices now have contributed to some demand destruction, especially in the USA ... but the supply is dwindling still faster than demand ... yes, we have a correction to $130 from $145 .... but the trend is still in place, and if you are still short, then you deserve very bit of what happens to you going forward ....

[Don Agree]

Today oil spiked up on Nigirian pipeline explosion, By observation and of the oil market swing the last 5 times the market began to retreat there has been a nigiran pipeline explosian. UMMMM lets see is it possible that the nigerans may want to make more money. So they have been conditionted to be a price improver. Do you really think they will disrupt it bad enough to cut their own financial throat.

The last time the oil bulls ran amuck. We did not have an oil man for president. They released millions of barrels from the stockpiles into the market. The price dropped like a rock. Ending the supply vesus demand arguement,

Short selling is not the same as naked shorting. The trouble with the market is nobody sees the rigged game. Goldman sachs oil will go to 200.00 What losses on other investmets are they tying to recoup. So we buy in to every rumor blogger sound bite. Trendy get rich quick deal, Buffet is Buffet because he plays the long game.

HELLO you have a shortage of oil when you have a line around the block at every gas station and you can only buy gas on alternate days based on the odd or even last digit on your license plate.

Yea that reallly has happend puppies. Yes .COM < REAL ESTATE< now OIL has bubbled, Game over. YES SIR history and memory really are an under valued commodity.

Have you ever heard of anybody being able to stampede a herd of Bears. Ah Ha bulls now that is a different animal that does not think about anything but the direction of the stampede.
They don't seem to ask themselves should I be stampeding. Is this real or is it the perception of reality of my own desire.

I can only hope that some of the rules of the game that have been lifed and modified to the detriment of the market are reinsated soon.

Profit is profit it is only greed that makes you want more then enough/ Greed is never pretty.

[awb]

Jason, you clever boy. You sure have picked the trends. First dot-com, then real estate, now oil. You are not to be fooled.

Question. Why hasn't the global production of oil increased over the past few years as the price has soared? Hmm. Why are all of the OECD producers declining in production? Hmm. Why are the reserve books at the OPEC producers so opaque? Hmm.

No, Jason, this is not a bubble. It is the beginning of the end of fossil fuel as we know it. It has been a very good run this last hundred and thirty some odd years, digging out the cheap stuff and burning it into the atmosphere. But every party must end.

Tell you what. Let's us wager on the chance of $50 oil. Ever again. All in. That way I won't have to keep watching this slow motion nightmare of our global economy unwinding and coming apart.

I can just sit on my beach blowing bubbles.

[yngalpacinolookslikeme]

I like pretty much all comments herein. outtanames certainly gives a very, very good response and perhaps an excellent question. If I were kidding I'd say listen to ex-Penn professor and philosopher Buckminster Fuller. His answer: photosynthesis. Think about it. Your car, plant, factory would have a photosynthetic power source. Give it H2O and sun and pow wam, you had energy. Realistically, I don't know the answer but I think like in the movie "Man on Fire" with Creasy (Denzel):
Fuentes: A last wish, please, please. Please.
Creasy: Last wish? I wish you had more time.

[investor88]

Goldman and Matt Simmons' view is that oil prices will be high and likely to go higher in coming years as supplies are tight and increasingly costly to find, unless there are breakthroughs in alternative energy. I think this view still carries weight despite the opposite view expressed by Jason.

[buyitcheap]

The black swan in this is unstable oil producers - Iran/Africa, etc. A big "blow up" there, pardon the pun, and oil is up $20. I think this is a short term pull back in a rising price channel. It ain't over yet.

[FeverBuster]

christletoe,

The last report from the EIA on gasoline indicated the opposite from you claim of being at an all time low and on the verge of shortages. Please post a reference for this claim.

Additionally, with oil being at an all time high, inventories have to be managed better to hedge against potential price drops like what we have seen in last few days. The higher the price of oil, the less the demand, and thus the less inventory needed as buffer. As the demand goes back up, so will inventories.

[mark mchugh]

I'm noticing a disturbing pattern developing here. The very same people who didn't "get" the housing bubble are screaming bubble in oil.

Guess what? They're sense of direction is as skewed now as it was then.

[Crapneck]

"They will use any rationale they can find to shift our focus away from the fact that gasoline shortages don’t exist and new oil is plentiful." Please state some facts instead of this general statement "new oil is plentiful." The reason you don't back this up with facts, is because it is not true. The fact is that there have been no major oil producing fields discovered in over 40 years. Many of the fields have reached peak or are on the decline. Many asia countries and other emerging market countries that didin't demand oil in the past, are demanding oil now. Auto sales in June surged in China for example. We may have some short term price declines in oil, but the long term pressure on prices will be upward. The difference between oil and housing and tech is that oil is a limited resource. Please provide more facts to your argument before you just post something that people want to hear so they believe (as evidenced by the posts above) without using data to back up your point.

[Malkiel]

All of these simpletons in your fan club probably couldn't even find China or India on a map. They probably have no idea of the demographic tsunami buoying up oil--1 billion Indians and 2 Billion Chinese who are becoming automobile owners. The population of the US is 300 million, or 10% of those two countries. Try to imagine the oil used to manufacture and drive A BILLION NEW AUTOMOBILES.

If oil pricing stays flat at its current level for a while that will be a great gift because it will give us time to develop alternative energy technologies. Spending that time drilling new wells off Santa Monica will be beside the point given what will happen to demand elsewhere in the world. And while those other countries will be clever enough to do some of their own alternative energy development, it's unlikely the fruits of their labor will be anything we can just buy at Home Depot to run our homes.

It's time to wake up and smell the coffee and stop being a nation of wishful thinkers who enjoy nothing more than bad-mouthing trends we don't like as "bubbles" that must be superficial and will therefore go away if we close our eyes hard enough...

[FDRFan]

Allowing the oil speculators to run free and effect a resource that drives almost every aspect of our economy at the same time our economy is taking a beating from the fall of the housing industry is the perfect recipe for the 2nd great depression. We need a President who will step up and take bold moves to push the country and the congress into action. We certainly are not going to find this in Obama or McCain.

[yngalpacinolookslikeme]

Malkiel, good joke: "Try to imagine the oil used to manufacture and drive A BILLION NEW AUTOMOBILES."
Fyi, unlike probably YOU, there are a chit lot of poor people in these countries that cannot afford an indoor toilet, let alone an "auto" "mobile." Plus, what drives these countries is the unbelievable engine called the "US consumer." If the US consumer stops buying guess what happens to the growth in these 2 countries. Take a wild guess.

[nebulae]

wishful thinking mr. schwarz and to most people on this post who agree with him!! oil could go another 20 bucks lower to $110 the next 2 weeks, but you know what? - it will soon be back to $140 and keep rising. I'm of the school that oil will hit the $200 mark by next summer. I don't like paying gadzillions at the pump either, but if you want to stay in an investment for the next couple of years, oil is it. it truly won't go on a more permanent decline any sooner than that. notice i said "more permanent decline". it's funny watching cnbc and other financial shows getting their panties wet cuz oil just dropped $15 in a week. get ready $250 oil baby - i'm just sayin.

[X-terminator]

The total cost of the Iraq war, we as a nation send to the middle east that much money every single year for oil! That my fellow Americans is the reason we should start drilling now and before we run out of this black crap, the alternatives will be in play. Oh, by the way how much of the money we send to the middle east ends up in the hands of our enemies!

[Peak oil]

Those who say oil is a bubble, do not understand peak oil.
www.lifeaftertheoilcra.../

www.youtube.com/watch?...

[MahatmaCoy]

All bubbles burst, even when they are in a rolling boil. Just because the bubble breaks doesn't mean the heat is off. Please listen to Peter Cohen of Ramius on CNBC July 9, 2008.

www.cnbc.com/id/158402...

[ozzy43]

There are some serious problems with this analysis, but the most severe is this: tracking oil prices in dollars makes little sense, yet that provides the fundamental basis for the argument being made - as though dollars were a fixed store of value!

Try tracking oil in gold prices, which is still not ideal, but is certainly better than using dollars, which are constantly manipulated by the Fed. Using that basis, the analysis looks quite different.

Another flaw is exemplified by this statement:

"gasoline shortages don’t exist and new oil is plentiful"

No evidence is given for this astonishing assertion. The US uses about 20M barrels per day - ~25% of the global total - and when pressed (begged) by the President of the US, the Saudi's - the only exporter in the world with (at least alleged) spare capacity - can only manage to squeak out an extra 200k - 500k barrels per day (and the world expects the Saudi's to generate an extra 10M barrels per day or so in the next decade??). That's plentiful? Have the Saudi's discovered a new Ghawar that I didn't hear about? Doubtful. Thus, there are very real concerns about supply going forward, and 'plentiful' is not the right word to use here.

The market is not based on whether or not there are gas shortages NOW - it's a leading indicator. Priced into oil is the uncertainty about supply and demand in the FUTURE. This analysis seems to miss this point utterly.

Further, there is a major difference between oil and housing on the one hand, and tech stocks on the other: houses and tech companies are not finite, non-renewable resources. Oil is. The same rules do not apply. How is it that so many self-styled 'oil analysts' miss this most fundamental, basic, incontrovertibly vital point?!?!

Oil prices will certainly correct from time to time, but until the uncertainty about long term sustainability of oil supply is directly addressed (and the utter lack of transparency from OPEC and the psychosis emanating from Russia are not encouraging), it's seems foolhardy to assert that high oil prices are a 'bubble', and it seems likely the uptrend, or at the very least a sideways action, will continue. In other words, concrete facts about supply will be required to drive the price trend down. No such facts are in sight at the moment, despite the speculation about demand destruction - speculation does not equal fact.

[FeverBuster]

Oil bulls need to realize that as oil price rises, any cash profit they make in realized value decreases over time. Since oil contributes to inflation when it goes up, it essentially erodes the profit that you are making. Inflation becomes the check and balance for oil pricing. So, a dramatic price drop in oil to get inflation back in line would allow the market to explore higher prices once corrected in the future.

[genco]

BRAVO! Someone else is awake.

However, it may be too late for oil, as the alternatives have already started the investment amortization process. If the price of oil goes down slowly and keeps the alternatives competitive, oil may have to get cheaper to compete.

When T. Boone stops hyping oils and starts hyping wind, something is up. GA

[MGB]

Countries outside the Opec oil cartel will barely be able to increase their production of crude oil over the next five years for the first time in the industry’s history, the western countries’ energy watchdog warned yesterday.

The International Energy Agency’s dim forecast to 2013 suggested record oil prices have yet to balance sluggish supply with relatively robust demand.

“Structural demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture over the medium term,” the IEA said in its Medium-Term Oil Market Report.

Despite billions of dollars of investment, the challenge of pumping ever more oil out of ageing fields is proving so great that non-Opec countries will, in the next five year, have to rely on bio-fuels, such as corn-based ethanol, for 50 per cent of their growth in overall fuels.

The IEA said annual non-Opec supply growth, including biofuels, would slow to 0.5 per cent between 2008 and 2013. But demand, supported by rising incomes in developing countries such as China, would grow by 1.6 per cent a year.

Analysts warned the new forecast meant the world economy would rely more on Opec and oil prices were likely to remain elevated.

“Poor supply-side performance . . . in the face of strong demand pressures from developing countries has forced oil prices up sharply to curb demand,” said the IEA.

Crude oil prices moved more than $3 higher to $143.33 a barrel as the market digested the forecast. The IEA said that current prices, which hit a record high this week of $143.67 a barrel, were “justified by fundamentals”.

The fast decline of fields - especially in the North Sea and Mexico, where production is shrinking by more than 20 per cent each year - means that 14.8m of the 16m barrels of new supply from non-Opec countries over the next five years will only go to make up for losses from old fields producing less each year. Stagnant oil output in Russia is another key factor in lower non-Opec supply growth.

Nobuo Tanaka, executive director of the IEA, said in an interview: “In non-Opec countries we want to see more access to resources and more transparency of the legal system because we believe that . . . the underground resource is still there; the problem is above ground.”

Opec, meanwhile, is also struggling, with project delays constraining its ability to add new capacity. The IEA substantially downgraded its expectations for Opec crude capacity from 2008-2013, cutting earlier forecasts by 1.2m b/d.

The IEA said it believed Saudi Arabia was having bigger problems than the kingdom, the world’s largest exporter, was willing to admit to.

These fluctuations in oil supply come as demand growth is continuing, especially in the developing countries, whose oil needs are expected to have almost caught up with those of the rich world by 2013.

Copyright The Financial Times Limited 2008

[Investor612]

Comparing oil to tech and housing isn't even apples and oranges, it's apples and rocks. The biggest difference is that there are severe supply constraints with oil that didn't exist with housing and tech. There are also global forces at work that increase demand among those who currently use little energy, and more inelasticity of demand with those who currently are large consumers.

[blacksilver]

Or these could be the new lows

[Ernie Montague]

Unfortunately, the oil supply is neither plentiful nor easy to get to. The low hanging fruit was picked decades ago. Will oil go down? Absolutely. Will it stay down? Only when a comprehensive alternative source is in place, the infrastructure for which will cost, as did the oil infrastructure, trillions of dollars.

Don't bet on $40 oil again.

[milloy]

people actually pay you to manage money?

Sure new fields are being found, unfortunately larger ones like the Tupi are 23,000ft below sea level (including 6,000ft of water), not to mention that every single deep water rig in existence is already contracted out. Couple this with declining production of existing oil fields (including vital ones like the Cantarell & Gawhar) and anyone with a basic grasp of the forces of supply/demand would conclude your simplistic thesis is pure idiocy.

[Sophisse]

There is a significant difference between the oil price rises and the other bubbles you mention: oil is not an asset. Internet stocks and real estate are both assets, in that they are not consumed. When I buy them, I can't use them, I need to either hold them for their revenue stream or sell them to another investor.

Oil is not an asset, it gets used up by the final buyer.

Oil futures are assets. A bubble in oil futures would qualify as an asset bubble. But since oil futures expire into actual oil, such an asset bubble would necessarily be pricked at expiration time. For bubble students, this maps to the dutch tulip bubble centuries ago.

I'm not so naive as to suggest that futures prices have zero effect on spot prices, but the non-asset nature of oil is a critical aspect of this price rise that needs to be addressed by any bubble theory.

[Confident28]

Oil is not in plentiful supply, at least not the right kind of oil. Not all oil is the same. Do your homework and you'll realize that the highest demanded oil is light sweet crude and its supply peaked around 2005. There just aren't enough refineries in the world that can refine heavy sour crude, and all of that "plentiful" oil out there is getting heavier and sourer. It'll take years and billions of dollars before the refining world catches up.

[phill08]

the only thing that has changed from 1 2 or 3 years is dollar value and the bull run in the stock market coming to an end
hedge funds with 547 trillions at 2007 count have had a field day
dont get caught in the headlights

[Think-About-It]

Crapneck said:

"Many asia countries and other emerging market countries that didin't demand oil in the past, are demanding oil now. Auto sales in June surged in China for example. We may have some short term price declines in oil, but the long term pressure on prices will be upward. The difference between oil and housing and tech is that oil is a limited resource."

I could not agree more. Comparing the Internet and Housing to Oil is lazy and off course. Yes, commodities have their own bear/bull market cycles buy they tend to play out over longer time frames (say 10 to 20 years - depending on supply constraints) then the traders on this website care to consider.

Shorting oil, especially 2x via DUG, is a dangerous game because you are working against the long-term price trend which is driven by underlying fundamentals of supply & demand on a GLOBAL basis.

[ari5000]

Dude, anyone can sell a summer home -- they don't need. Or a tulip.

Why don't you try not using any gasoline for a week?

Ain't no bubble, my friend, because you and I can't live without it.

[chistletoe]

oh fun.
yngalpacinolookslikeme -- yes there are a lot of poor people in china.
Do you know that there are also many more college graduates, high school graduates, and people who speak and write English than there are in the USA? No, maybe not, because you didn't, didn't, and don't.

Feverblister --
you are half right ... gasoliine is in the upper half of the range.
Here's the EIA monthly and yearly figures for crude:
tonto.eia.doe.gov/dnav...
Note that the last time inventories were this low was in Dec, 2004.
Note that the US population has increased by 15% since then ...
probably though, mostly by people like yngalpacinolookslikeme
who don't have indoor plumbing, let alone a car ...
Your opinion about inventories being inversely proportional to demand is interesting ... it seems to me that hoarding may be
a factor also and that anyway, the total amount of crude oil and
gasoline in the report, excluding the SPR, is scarcely a one-month supply fur current US usage so it's not really all that significant a factor in the price of crude anyway ...its probably nearly all necessary to keep the supply chain running between the tankers and the refineries and the filling stations ....
As for inflation ... which is far above what the DOL figures claim
and can only continue to increase as the Federal Reserve has to print more and more money to lend to itself, as more and more foreign entities stop loaning money to the USA ...
yes, the imminent collapse of the US government might have an interesting effect on exploration and net demand ... what do you think will happen?

[majorman]

I only need gas to get to the store and work. Everything else is optional. Soon employers will be supplementing your paycheck with gas credits. We are so behind the eight ball. As a world leader we taught the world gluttony. They want to emulate us but it is an illusion. The world cannot support the red dragons' numbers. I was in China eight or nine years back and saw the beginning of the end. McDonalds, kentucky fried chicken, Starbucks positioning themselves as the greedy corporate vampires they are. How much more of the rain forrest goes down to farm cattle. Cattle who pollute the water systems and eat the grains starving people from starving countries could be using. The world needs a makeover and it will start reluctantly with us. Less will be more in all of our lives. From now on it becomes a "Remember When?" civilization. Hunker down for the "Greatest Depression mankind has ever seen." It will start will bank failures and rises in commodity and food prices unlike any ever seen before. I am guessing three years from now. 2011 -2012. Get an old copy of Howard Ruffs book "How to prosper during the coming bad years" He was thirty years ahead of his time. Start storing enough food for you and your families. Don't go nuts and start hoarding. But be aware. Goggle history on what happened in Argentina when they went bust. History does repeat.

[Karl F.]

Jason, you are right. Most of the comments here confirm the old experience that the big majority doesn’t recognize a bubble until it has really burst.

[fireball]

JASON what do you think of pbr since they are moving bigger into alternatives that are cost effective? FDRFAN obama seems pretty hard core socialist why do you dislike? most older folks think fdr saved the country but the few think he prolnged the problems with his socialist cures and what saved the country was the wartime economy.........so jason we should avoid all energy investments?MAJORMAN were those greedy companies trying to make money? we have no say in the developement of brazil. i like nature but i like a good steak too. is oil causing inflation or is that backwards? the high speed presses may have something to do with the problem. gold and silver seem to think so. gold even seems to be saying oil is really growing in value. MAJORMAN one thing you said makes plenty of sense. we may see some trying(even worse) times. we should always hope for the best, prepare for the worst and expect something between. where is all that new oil? we do not need to drill here now? so the easier projects are a year or two away and the hard ones are a decade. in the future we say no do not drill it cannot help today? if opec nations are building infrastructure i would guess they will be keeping more oil at home. should we stop working on alternatives since they will not help by 5:00 tomorrow? i think we need all of it oil, ng, solar, thermal, wind,....... the alternative is not healthy to children or other living creatures. as john s gordon says, lets get crackin. p. s. mccain aint much better. is anyone getting tired of voting for the lesser of 2 evils?

[iThinkBig]

I like GM right now, great cheap buy. The Volt is GM's debut. Oil will stay high until this release, 2012 then oil will plummet a couple of years afterwards as they are mass produced. User 2281 hits the nail on the head. It's OK to give the name of the company buddy. This is a small group of bright investors. There will always be those without common sense to make bundles of money from. I like biodeisel too as mid-term fuel of the future to offset oil demand. I don't seem to be finding too many good stock buys though, perhaps someone else knows something I don't.

[petersterling]

There's tons of oil and gas out in the ultra deep waters of the world. E.G., Brazil offshore discoveries, 30-100 billion barrels. It needs $100 a barrel to make a profit though. and there's more in the Colorado oil shales at a cost of $30-$40 a barrel. Plenty for hundreds of years if Congress would just get out of the way. Give government control of a desert and they will create a shortage of sand within 5 years....

[sbenard]

No shortage of opinions here!

Correction, yes! Bubble, no way!

[starkoski]

Jason, you were probably saying the same thing back when oil was $70/barrel. Well you better learn about Peak Oil or you will be doomed and will end up disgraced, broke and destitute. And not fun to hang around with either.

[investor2]

Whether oil is in a bubble now or not in a bubble is NOT the real issue. The real issue we have to solve once and for all NOW is to become energy dependent. Just like Brazil did. Otherwise we will be forever slaves to the whims of the market and the oil producers.

There's no doubt that supply and demand for oil is the primary mover as countries like China and India are demanding a huge amount of oil to develop their economies.

We have enough oil right here but our politicians just don't get it. As for alternatives, they're still years away and while we should work on them we should also be DRILLING OUR OWN DAMN OIL NOW. We have to attack this on all fronts. Alternatives are a wild card. Ethanol is a joke.....it actually creates more pollution and consumes more oil to produce than what it saves. The other alternatives all have pros and cons. We can't afford to wait.

I recall 10 years ago when Pres Clinton shot down the Alaskan Oil in ANWAR. The environmentalist wackos were ecstatic because finally we would come up alternative energy to replace oil. Well, here we are 10 years later and more dependent on oil than ever. If Clinton had opened ANWAR for drilling we would be getting a million and a half barrels of oil PER DAY right now. But Slick Willie was too busy drilling Monica instead.

Now we're the ones getting screwed at the pump!

[robc935]

India's economy is already showing signs of trouble, China has been subsidizing gas prices as have many of the surging economies. Infrastructure for all these new cars isn't in place. Once the Olympics are over and the world's eyes aren't focused on China I think that their overheated economy will hit some bumps in the road. High oil prices will ultimately kill world demand or at least slow it down. But gee wiz, if Goldman Sachs says oil will hit $800 a barrel then surely it will.

[carbonates]

Unfortunately the facts (supply, demand, known reserves, production declines) don't really support your premise. Sure, demand destruction is likely, at least in the short term, but it is only a matter of time before production declines cause another supply crunch. This is real, folks. Take it from a geologist.

[mangolfer]

Great article. I've been buying DUG (oil shorts) and doing well this week. When the news is the same new every day, "mideast tension, Nigeria rebels, Asia demand, etc., they keep using to support this, I say it's going down