Some say no. They say unlike the tech and real estate bubbles, there’s no overabundance of supply. Others say these high prices are not sustainable.

Oil prices have doubled in the past 12 months, surging nearly $8 a barrel in the past four days alone.

Big investment funds are putting money into oil futures as if Saudi Arabia’s spigots will run dry tomorrow. At the same time, the supply of oil and the demand for it hasn’t changed much in the last year.

So it raises the question: Is $135 oil nothing more than one big bubble? Some say no. They say unlike the tech and real estate bubbles, there’s no overabundance of supply. Others say these high prices are not sustainable.

The answer depends on who you ask.

A bubble is where supply overwhelms demand, pointing to previous bubbles – like the tech bubble in the late 1990s where companies with zero earnings issued massive amounts of stock, and the real estate market a decade later where home builders went on a frenzy, overshooting the number of homes the market could absorb.

“But unless I’m missing something here, I don’t see any massive increase in the supply of oil”.

Read (more…)

Crude oil futures pass $130 a barrel for the first time on supply concerns, weak dollar.

Crude oil prices are shooting further into record territory, breaking above $130 a barrel for the first time on persistent supply concerns and a weaker dollar and heading for $180 a barrel.

The July contract for light, sweet crude rose as high as $130.30 in electronic trade on the New York Mercantile Exchange late afternoon Wednesday in Singapore.

Concerns that OPEC won’t increase its crude production before September fed some of the buying. Also, the dollar has been weakening against the euro and yen the last two days after appearing to be on a recovery track.

Oil futures are now selling for about twice what they were just a year ago.

In the short term — say, the next two years or so — we’re looking at bad news about global oil supply that could take the price of a barrel of crude to $180.

Needless to say, today’s $3.50-a-gallon gasoline would look cheap if oil prices hit $180 a barrel. At that price for a barrel of oil, gasoline would cost somewhere north of $5.50 a gallon.

Read (more…)