August 14, 2005
Is Oil A Bubble?
My B-in-L Bob, a very senior BP exec (now retired), is the one who initiates the "Oil is a bubble" discussion. All the inflation adjusted charts seem to only go back to include the 1970s --- and that's not far enough to show the true price trend of oil. Bob argues that Oil has been in a very long downtrend, and the 1970s price spike was an aberration. So too, the 2003-05 run up. A longer, inflation adjusted chart would reveal that the present spike is aberrational, and unlikely to be sustainable. I am somewhat incredulous of this claim.
Posted by James Zellmer at August 14, 2005 6:06 PM
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His point however, is well taken. While he is expecting an eventual mean reversion, simply base dupon price, I have a similar expectation based upon market cycles. The next recession (there's always a next recession, just as there's always a next recovery) will see reduced demand for Oil, and that will allow prices to fall.