The price of oil - To infinity and beyond...

The price of oil keeps going up, and at an amazingly rapid rate. I have posted before that I believe that the current price represents pure speculation disconnected from the usual laws of supply and demand similar to tulip prices in the Netherlands in the 19th century and NASDAQ prices much more recently.

One of my favorite blogs, Dinocrat, has been warning about the oil bubble for some time and today they have added had several additional posts. Here is the most recent:


We live in that (hopefully) brief moment when the Index Speculators ruled the earth and pushed oil from its new high of $135 a barrel to God only knows what price.

Oil prices rose above $135 a barrel for the first time Thursday…”Simply put, this is a market you cannot afford to be short in,” said U.S. analyst and trader Stephen Schork about Brent futures…Goldman Sachs last week revised its oil price forecast for the second half of 2008 from $107 to $141 a barrel. But some analysts saw the new target becoming a reality much sooner. “Futures are moving so fast that under the current volatility that goal could already be reached within the end of the week,” said a report by Olivier Jakob of Petromatrix

We’d really like to know what Goldman Sachs’ oil futures positions are, given its forecast and its top former officers (eg, Paulson and Steel) serving in the top positions in the US economy. Furthermore, we’d like to know at just what ridiculous price the administration will stop saying that oil prices continue to represent “fairly” the actual marketplace conditions of supply and demand, when demand is obviously getting destroyed every single day. Finally, of course, it would be nice if Congress stopped their silly lectures to the oil companies and started letting them get some of more of the 112 billion barrels of oil and 420 trillion cubic feet of natural gas that are right here at home.


As a reminder, here is the graph showing the run up of the NASDAQ. If you laid this graph over the oil price graph they would corrolate pretty well. If we had detailed prices over time for the tulip rush in the Netherlands I am confident that graph would also look almost the same. To see what happened to the NASDAQ shortly after the period of this graph look below.




The NASDAQ composite index slid down the graph from a high of 5,000 to about 1,200 in the same time it had taken to run up to 5,000. I feel like the boy who cried wolf about the price of oil but I am sure it will come down from its stratospheric heights soon ("soon", of course, being a relative term).