Friday, June 20, 2008

$140 a barrel oil = Speculative Bubble?

detektor(you'll see his name in comments sometimes) asked me what I thought the deal was with how quickly oil got this expensive. His assertion was that it was a bubble caused by commodity speculators trying to make gobs and gobs of cash off of the backs of poor people who are hit hardest by rising food prices(which looks to get worse btw with the terrible floods in the Midwest) and expensive commutes. I hadn't really given it much thought, and am no economist, so I didn't have much of an answer... but speculation didn't really seem a quite right... or at least a sufficient explanation. However, Kevin Drum was pondering the same issues, so I figured I could give it some deeper thought... though his answers are as unsatisfactory as my own.

A month ago, Paul Krugman said not a bubble... but prices have continued to rise over the intervening weeks. My guess is that he's right, that $100 a barrel oil that came about over the last five years is the result of "fundamental factors"... but that Kevin Drum and detektor are right that the last month looks a lot more suspicious. I think this was pretty much George Soros's conclusion earlier in the month, and he's a liberal and a lot richer than I am, so he must be right.

It all seems pretty complicated and glad it's not my job to figure it out.