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So with oil continuing to increase in price, I was thinking to myself, "Wow, anyone invested in oil is likely making some $$$," but then I thought, "Every bubble in history is fueled partially bep eople who always think, 'This time, things are different,' as we saw with the tech bubble and housing bubble most recently, people thought tech stocks would keep growing and growing (even notable economists!) and they crashed, the same was said regarding housing, and that crashed too."
So I thought to myself, "Oil can't possibly keep increasing forever, can it?" but then I thought, "But IS this time different because of increased demand and limited supply...?"
So I Googled it and got two opposing viewpoints, one from Reason magazine (libertarian): http://www.reason.com/news/show/125414.html which says most likely yes, it is, and one from the New York Times economist Paul Krugman, who says, no, it isn't: http://www.nytimes.com/2008/05/12/opinion/12krugman.html
I was wondering what some of the investor folks here think? The articles directly argue each other. In the Reason article, they say that oil demand is inelastic, meaning if gas goes up by another dollar or so, you still have to fill your gas tank and drive to work. Over the long run, however, demand will decrease as people buy more fuel-efficient cars. They say it is primarily speculators driving oil prices right now, not supply and demand. However, the NYT article says the opposite, that if speculators drive up the price of oil, people will cut back on driving, turn down their thermostat, and owners of marginal oil wells would put them back into production.
I am not sure if I agree with Krugman (NYT) on the driving part, I think people already would have cut back on driving if they will do so, I don't know about the thermostat part (I hate cold!), regarding the oil wells, I have no idea with that but I would think that even with oil prices up, that the owners might be cautious to put them into production for fear that if prices drop again, this could be a problem; I don't think putting a well into production and then shutting it down again is as simple as flicking a switch. I don't know for sure though, I am no expert.
And Krugman also says that it isn't speculators, that this is just made up nonsense (directly contradicting the Reason article) and that it is supply and demand controlling oil prices, and that demand is squeezing supply. Reason says demand has actually decreased and surplus oil production is up, so...
What do you more knowledgeable folks think? Me personally, I am still guessing an oil bubble. Krugman says they were saying this back in 2005, but I mean the Dot Com sector actually started to collapse in 1999, but then recovered, then collapsed again in March 2000, then recovered again, and it wasn't until the Fall that stocks really started to crash permanetly, so bubbles can be persistent.
Part of me is a bit afraid that oil prices will keep increasing, but then the old historical "That's what they've said for EVERY bubble, that 'this time is different'" so I don't know. Also remember that the oil industry historically is cyclical, so prices should go back down at some point I'd think.
So I thought to myself, "Oil can't possibly keep increasing forever, can it?" but then I thought, "But IS this time different because of increased demand and limited supply...?"
So I Googled it and got two opposing viewpoints, one from Reason magazine (libertarian): http://www.reason.com/news/show/125414.html which says most likely yes, it is, and one from the New York Times economist Paul Krugman, who says, no, it isn't: http://www.nytimes.com/2008/05/12/opinion/12krugman.html
I was wondering what some of the investor folks here think? The articles directly argue each other. In the Reason article, they say that oil demand is inelastic, meaning if gas goes up by another dollar or so, you still have to fill your gas tank and drive to work. Over the long run, however, demand will decrease as people buy more fuel-efficient cars. They say it is primarily speculators driving oil prices right now, not supply and demand. However, the NYT article says the opposite, that if speculators drive up the price of oil, people will cut back on driving, turn down their thermostat, and owners of marginal oil wells would put them back into production.
I am not sure if I agree with Krugman (NYT) on the driving part, I think people already would have cut back on driving if they will do so, I don't know about the thermostat part (I hate cold!), regarding the oil wells, I have no idea with that but I would think that even with oil prices up, that the owners might be cautious to put them into production for fear that if prices drop again, this could be a problem; I don't think putting a well into production and then shutting it down again is as simple as flicking a switch. I don't know for sure though, I am no expert.
And Krugman also says that it isn't speculators, that this is just made up nonsense (directly contradicting the Reason article) and that it is supply and demand controlling oil prices, and that demand is squeezing supply. Reason says demand has actually decreased and surplus oil production is up, so...
What do you more knowledgeable folks think? Me personally, I am still guessing an oil bubble. Krugman says they were saying this back in 2005, but I mean the Dot Com sector actually started to collapse in 1999, but then recovered, then collapsed again in March 2000, then recovered again, and it wasn't until the Fall that stocks really started to crash permanetly, so bubbles can be persistent.
Part of me is a bit afraid that oil prices will keep increasing, but then the old historical "That's what they've said for EVERY bubble, that 'this time is different'" so I don't know. Also remember that the oil industry historically is cyclical, so prices should go back down at some point I'd think.
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