Pricking The Crude Oil Price Bubble

In June when crude oil closed above $138, I featured the chart below, showing that adjusted for inflation crude oil was not only exhibiting classic bubble behavior, but that it dwarfed previous oil spikes:

The next day as Texas tea ramped up the most dollars in its trading history, I mentioned that even if we looked at crude oil priced in gold, it was expensive:

…which would imply that if this ratio has any significance, a top in oil is close at hand.

It took a few weeks until the top was put in oil at ~$148 in mid July. But as of now it is down approximately 27%

A quick glance at the chart shows previous resistance, now support, at the round number $100. When or if, oil continues to fall, it will provide relief for the economy. As for whether the spike up was manipulation, normal market dynamics, a bubble, etc. I’ll leave you to explore that for yourself.

You can find a lot of links about oil and the price of oil here.

Comments

[CLH:]

You were right that oil was over priced and I think its got further to correct.

2008 Sep 10 11:06 AM

[Alex Filonov:]

'As for whether the spike up was manipulation, normal market dynamics, a bubble'

All of the above (normal market dynamics can include manipulation and bubble any time). But the real story here is that no manipulation can ever defeat market forces. Market will humble anyone.

2008 Sep 10 04:56 PM

[Sprinkler:]

Maybe you can answer this, If oil is down to $102.00 a barrel, why, oh why, here in Michigan, has fuel at the pump gone up 10 cents a gallon since yesterday, September 9, 2008. Our average per gallon or regular unleaded in our Michigan area is 3.93 per gallon.

2008 Sep 10 08:41 PM

[mangolfer:]

I agree, it was all of the above. Everybody was herded into believing the sky was the limit by all the talking heads from LEH, MS, GS, etc. I'll go long again at $80, (small amount depending how the economy is doing) but not before.

2008 Sep 11 07:31 AM