Wednesday, June 11, 2008

Oil:Supply/Demand or Bubble?

A lot of folks are asking the question. Is the current run-up in price a result of supply & demand (fundamentals) or a bubble fueled (sorry about the pun) by speculation.

The general thrust of the fundamental story does seem right to me. Increasing wealth in BRIC nations leading to shifts in the demand for oil leading to higher prices.

However, would we see such a huge increase in oil prices given the slower and gradual increase in BRIC wealth? Perhaps so. Markets are not perfectly efficient and can sometimes rally to catch up to real world facts they should have taken into account months and even years ago.

However one of the smartest guys I know (my dad) thinks it is speculation and the price is about to fall dramatically. He is not an economist but he is not wrong about much of anything very often.

DD

2 comments:

alex said...

Hi! I've been reading your blog, and you talk about a lot of the same issues we discuss in our new book, The Gods that Failed. We've set up our own blog at www.thegodsthatfailed.co.uk - see what you think!

Dismal Deacon said...

Alex,

Thanks for visiting.

What issues does your new book talk about?

DD