Dont believe this bubble... The bubble bursting crowd appears around the same time every year... You know the ones Im talking about. They say oil prices are heading off a cliff, and their rumblings grow louder as prices head lower. (Well forget for the moment that this is the time of year when oil prices should be weak.) Before I go any further, its important to understand why these oil bears are popping up and calling for oil to crumble. After all, weve seen it happen before... Back in 2008, the price of Western Texas Intermediate (WTI) increased more than 60% in a matter of five months. The cost of one barrel of light, sweet crude from West Texas sold for as much as $147 at one point. oil price run 11-5 Of course, what followed that run-up was an absolute nightmare for investors with skin in the game: oil price crash 11-5 41 Price Doubles Set to Happen Tomorrow A certain corner of the market is now seeing stocks break out at an average rate of 26 per day. Twenty-six! To be regarded as a breakout, a stock must move by 100% (or greater) in a single day. Its making a lot of people rich, starting with just a measly $50 up front. The next time a $50 bill ends up in your hand, set it aside. Youll wish you had it after learning the following details. So its understandable that a cursory glance at an oil price chart would have some people worried that a collapse is imminent. In fact, I saw one prediction a few minutes ago that called for crude prices to fall below $60 a barrel. Now, WTI prices did jump nearly 30% between April and September of this year. And as of yesterday morning, WTI was trading under $95 — its lowest point in more than four months. oil chart 11-5 To the bubble prognosticators, its a sign were heading for a crude awakening. But Im not buying it — and neither should you. You see, there is a huge flaw with the “it happened before, itll happen again” school of thought. Simply put, we are in a very different situation today than we were back in 2008. Reality of the “Oil Bubble” Today Where do we even start? Anyone who believes that a massive decline in U.S. demand was responsible for the price crash may want to rethink that position right away. Despite being the worlds undisputed leader in global oil consumption (Americans consumed more than 19 million barrels per day last August), U.S. demand for petroleum products has been relatively flat for decades. And dont expect our consumption to take off in the future. Demand in OECD countries (think countries like Canada and Germany) is expected to stay more or less flat for the next thirty or more years. Some groups have even speculated that overall demand in these countries will decrease during the next three decades. So, if the problem isnt on the demand side of the equation, then perhaps its with supply?
Posted on: Tue, 05 Nov 2013 23:12:15 +0000
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