The Oil Bubble

Seventy dollars a barrel? Relax, it'll come down.

By Staff - Saturday, October 8, 2005 - The Wall Street Journal (opinionjournal.com)

We keep hearing the word "bubble" to describe industries with rapid and unsustainable rising prices. Hence, the Internet bubble, the telecom bubble, stock market bubble, and now, some analysts believe, a housing bubble. Yet for some mysterious reason no one speaks of the oil bubble--though prices have tripled in two years to as high as $70 a barrel.

Reviewing the history of oil-market boom and bust confirms that we are in the midst of a classic oil bubble and that prices will eventually fall, perhaps dramatically. Despite apocalyptic warnings, the world is not running out of oil and the pumps are not going to run dry in our lifetimes--or ever.

Those who are opposed to "oil" are never willing to concede that the environmental impact of oil, both in exploration and in use, are manageable problems. They insist that we must find some other alternative to gasoline for cars. However the reality is that all other options are significantly more expensive. Any attempt to move away from gasoling is going to damage society.

They keep passing laws that make the economic damage of oil worse, not better. A perfect example is the idiocy by which the EPA and the states have destroyed the concept of gasoline as a commodity product that can be used anywhere. They have forumlated numerous special blends that can only be used in specific states. That means that oil prices go up erratically. Refiners have less flexibility in where they can sell their product. Any problems result in shortages that cause price spikes that are artificial and in no way the desire of the oil companies.

Prices will drop soon, but not as much as people hope. Probably not the "dramatically" better prices hoped for in the article above. However no matter what the prices will be, they are cheaper than any of the alternatives.

Remember when you hear people who advocate passing more laws to "reduce" costs and "improve" the environment; the laws will do neither.