I guarantee that the price of oil will drop today, but... (The Oil Nonbubble)
I can virtually guarantee that the price of oil is going to drop today. How can I be so sure you ask? Because I am going to talk about how I believe that high oil prices are here to stay and that they will eventually head higher from here :). According to Murphy's law, whenever I make a bullish statement like that the price of whatever I was talking about will temporarily drop. For a number of months, I was one of the lone voices who disputed the fact that we are in a commodities bubble. Some people are still staing that, but the media has backed off of that prediction and is instead hyping the current astronomical rise in the price of oil. Here are a few of the pieces that I have written on the subject:
- Barron’s is Wrong Series Post 4: New ethanol plants and declining oil production in major countries support the prices of food and oil
- Barron's is Wrong Series Post 2: Increasing Consumption from Emerging Markets
- Barron's is wrong, the price of corn is going up (alternate title: the Government's Nuts)
- Corn and Soy Bean Prices are Headed Lower…for Today
- Commodity Prices are Headed to the MOON!!!!
There's a bunch more, but you get the idea.
Anyhow, the point of this blog post is to mention a good New York Times OpEd article by Paul Krugman on the subject that was written the other day. Here's a link: The Oil Nonbubble. He basically states that analysts have been stating that there is a massive oil bubble since oil hit $50 per barrel in 2004, but "the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China." He basically believes the same thing that I do, that oil prices may very well pull back in the short run...possibly to even less than $100 per barrel, but that over the next several years the price of oil (and I personally believe natural gas as well) are headed higher, possibly dramatically higher.