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Oil Bubble Breaking? Barron's Outlines the Case, But the Argument is Weak

Mr. Levy outlines 10 reasons why he would like the price of oil to be cheaper. Wouldn't we all?

What if we forced oil companies to sell gas at prices reflecting $40-$80/barrel oil as he suggests?

They would shut their doors and then we would see shortages like we've never seen before. Why would they want to pay $100+/barrel and sell at less than cost. They would open up stores in China and India and sell there instead.

In fact, that's what's happening. Even without price controls, Exxon-Mobil has decided that selling gas in this country is not a worthwhile endeavor. They are in the process of closing their stations.

People are always looking for a scapegoat when things aren't going well. Why not blame the "evil speculators"?

Every crude oil futures contract that is bought by a speculator will expire. When it expires, someone will have to pay cash and take delivery of the oil the contract controls. I don't know of any speculators that have been hoarding oil in their basement that they bought with a futures contract. The only parties taking delivery are the refiners who can actually use the stuff. If they went on a buying strike, that would drive the price down, but since we (as a country and the world) continue to demand their refined products at ever increasing rates, they will continue to pay whatever they need to pay to get their crude oil.

The bottom line is that we are producing oil as fast as we can and demand is pushing the limits of the supply, driving up prices. The price may fluctuate in the short term due to traders, but the only way to get a real reduction in the price of oil is to increase supply or reduce demand.